No. 99/JULY 1979 OECD OBSERVER

No. 99 July 1979

Published bi-monthlv in English and French by THE ORGANISATION FOR Contents ECONOMIC CO-OPERATION AND DEVELOPMENT

EDITORIAL OFFICES OECD Information Service, Château de ENERGY POLICY $ ECONOMIC POLICY 3 la Muette, 2, rue André-Pascal, F 75775 PARIS, CEDEX 16. OECD COUNCIL AT MINISTERIAL LEVEL: COMMUNIQUE 4

Individual articles not copyrighted may be HIGHLIGHTS FROM THE OECD ECONOMIC OUTLOOK No. 25 reprinted providing the credit line reads July 1979 "Reprinted from the OECD Observer" plus date of issue, and two voucher copies A NEW ENERGY ERA are sent to the Editor. Signed articles by Ulf Lantzke, Executive Director, International Energy Agency 16 reprinted must bear author's name. The Organisation cannot be responsible

IMPROVING NUCLEAR SAFETY: A POST-HARRISBURG VIEW for returning unsolicited manuscripts. by Klaus Stadie, Head of Nuclear Safety Division Signed articles express the opinions of the of OECD's Nuclear Energy Agency 18 authors and do not necessarily represent the opinion of OECD.

RESOURCES FOR DEVELOPING COUNTRIES, 1978 23 Annual Subscription Rates: £ 3.60. $ 7.50, F 30.00. OECD TRADE WITH THE NEWLY INDUSTRIALISING COUNTRIES (NICs) Single copies: £ 0.75, S 1.50, F 6.00. by Stephen Marris, Economic Advisor to OECD's Secretary General 28 Editor: Jane Bussière POSITIVE ADJUSTMENT POLICIES (PAPs) 34 Associate Editor: Ulla Ranhall-Jeanneney INTERNATIONAL INVESTMENT AND MULTINATIONAL ENTERPRISES : Art. Production and Layout: REVIEW BY OECD MINISTERS 39 Marc Delemme

Assistant: NEW OECD PUBLICATIONS 42 Gerald Tingaud

Photo Research: Silvia Lépot

All correspondence should be addressed to the Editor.

PHOTOS : Cover: pages 4-5: L. Jouan - OECD; page 7: R. Mottar - OECD; page 16 (left to right, top to bottom): L. Jouan OECD; Wilhem Braga; Handelsministeriets Energi-Spareudvalg, Denmark; page 17 (left to right, top to bottom): Central Office ofInforma¬ tion; R egis B ossuSygma; J.P. L affont Sygma; page 19: US National Reactor Testing Center, Idaho Falls; page 24: L. Jouan OECD; page 26 (left and top right): Paul Rimmerfors; (bot¬ tom right): Bildhuset; page 28: Wilhem Braga; page 29 (left to right): J. P. Laffont, Davolle Sygma, A Imasy; page 32: Wilhem Braga; page 36 (top): Royal Danish Ministry for Foreign Affairs; (bottom) Pavlovski Sygma; page 37 (left): Central Office of Information, London; (right): Hubert; page 41 (left): VW; (right) IBM. ECONOMIC POLICY ENERGY POLICY

rhe tight oil market and steeply rising prices have dominated the economic news during June andJuly. The oilprice is now estimated by OECD to be 60 per cent above its December 1978 level, and the supply outlook remains clouded despite the recent decision by Saudi Arabia to increase production.

The impact of the oil price rises on the economy is evident in OECD 's Economic Outlook (see page 9). Its original forecast for economic growth over the next twelve months of 2 Va per cent already a full percentage point lower than the 1978 out¬ turn had to be revised sharply downwards to something less than 2 per cent following the oil price rise that took place in June. OECD 's Council meeting at Ministerial level (see page 4) warned that " without effective action to restore balance in world oil markets, the rise in oil prices could set off a new inflation-generated recession as in 1974-75 ". The Ministers also pointed to energy as the main constraint, with inflation, on economic growth over the medium term. The main courses of ac¬ tion they recommended are :

pricing and taxing oil and other energy sources in a way that takes account of the long-term upward trend in energy prices that is almost certain to prevail conservation, a " major effort " for coal and gas, production of indigenous oil, continued development of nuclear power with the necessary safeguards (see page 18 for an article on the current state of nuclear safety) and stepped-up energy R&D. Thus, energy policy has become a key instrument of economic policy. " We need stronger energy policies" said OECD's Secretary General, Emile van Lennep, in a press conference at the time of the Ministerial meeting, "in order to avoid being con¬ strainedfrom reaching higher economic growth in the Eighties. It is in this sense that energy policies have become an important tool of macro-economic management" (1). By now a number of countries have begun to cut oil consumption and it is estimated that the target of 5 per centfor the reduction in oil consumption decided upon by the members of the International Energy Agency inMarch and reinforced at a Ministerial meeting in May will be achieved before the end of this year. And some governments have announced measures designed to transform temporary savings into permanent structural changes in both patterns of consumption and the production of alternative sources (see pages 16-17 for some measures taken). These structural changes are re¬ quired to reach the longer term targets for oil import reductionsfixed by the IEA, the EEC and the Tokyo Summit. As UlfLantzke, Executive Director of the IEA and Special Counsellor to OECD 's Secretary General on energy matters, notes (see page 16), oil imports can be reduced by reducing economic growth, but he adds : "Clearly this is not a suitable solutionfor the world economy. "

(1) OECD's Economic Policy Committee has set up a working group to evaluate as a matter of urgency the macro-economic effects of developments in the oil market and the role of various kinds of policies in overcoming the energy constraint on economic growth. It will report back to the EPC in September. OECD Council at Ministerial Level : Communique

The Council of the Organisation for Economic Co-operation where demand management policies and exchange rates have and Development met at Ministerial level on 1 3th and 1 4th been working in the right direction international payments im¬ June, 1979, under the chairmanship of Dr. Hannes An- balances have been sharply reduced. drosch, Vice-Chancellor and Federal Minister of Finance of On the other hand: Austria. even before the sharp rise in oil prices the underlying rate of Renewed inflation and uncertain energy supplies have become inflation had begun to pick up again in a number of countries, major obstacles to achieving sustained economic growth and unemployment remains unacceptably high in most Member more jobs in OECD countries. Economic and energy policies must countries, respond if serious consequences for both developed and develop¬ there has been a serious turn for the worse in the shorter and ing countries are to be avoided. It will be easier to take the medium term energy situation and, difficult decisions required if Member countries act together. with slow growth and high unemployment there is an ever present threat of increased protectionism in all its many forms. Ministers therefore agreed on the need for greater solidarity among Member countries. They carried forward the concerted ac¬ Inflation tion programme adopted last year, revised in the light of the cur¬ rent economic and energy situation, and agreed on some gui¬ Ministers agreed that the most obdurate obstacle to faster growth delines for policies over the medium term. They reviewed the out¬ and more jobs is the continuing high rate of inflation in many come of UNCTAD V and reaffirmed their commitment to con¬ Member countries, and the risk that it may accelerate. Inflation structive co-operation with the developing countries. undermines growth directly by creating uncertainty and inhibiting investment; it may also require governments to pursue restrictive Overcoming the Obstacles demand management policies. to Sustained Economic Growth Energy The programme of internationally concerted action adopted last year has yielded positive results in more internationally balanced Ministers examined the economic implications of the energy economic growth, reduced payments imbalances and greater ex¬ situation (See page 16). They took note of the outcome of the change rate stability. It is encouraging that: meeting of the International Energy Agency (IEA) Governing some countries succeeded in bringing inflation back down to Board at Ministerial level on 21st-22nd May. (See OECD the level of the 1960s, Observer N o. 98, May 1979.) There is now a real danger that, where capacity utilisation has risen and profitability has without responsible policies by oil consumers and producers alike, improved, productive investment has picked up and, the energy situation will seriously damage the world economy.

Hannes Androsch, Austrian Federal Minister of Finance and chairman Japan: Ambassador Takeshi Yasukawa, Governmental Representative of the meeting fright) ; Sir Geoffrey Howe, Chancellor of the Exchequer for External Economic Relations (left); Tokusaburo Kosaka, Minister of the United Kingdom (left); Ambassador Peter Jankowitsch, Head of Economic Planning; Ambassador Tsuyoshi Hirahara, Head of the of the Austrian Delegation to OECD (middle). Japanese Delegation to OECD (right). Norway: Per Kleppe, Minister of Finance (left); Hallvard Bakke, Minister Robert Muldoon, Prime Minister of New Zealand and Minister of of Commerce and Shipping. Finance (left); Ambassador John Scott, Head of the New Zealand Delegation to OECD.

Emile van Lennep, OECD's Secretary General (left); Ingemar Mundebo, Canada: John Crosbie, Minister of Finance (left); Flora MacDonald, Sweden's Minister of Economic Affairs; Roy Jenkins, President of the Secretary of State for External Affairs and Ambassador Ronald S. Commission of the European Communities. MacLean, Head of the Canadian Delegation to OECD.

Without effective action to restore balance in world oil markets crease in indebtedness is a matter of concern to oil importing countries, especially the developing countries among them. the rise in oil prices could set off a new inflation-generated reces¬ Ministers noted that in present circumstances, countries highly sion as in 1 974-75. Many of the measures needed to reduce the dependent on the spot market may face particular difficulties. growth of energy consumption quickly may be painful, but if they are not successful the inevitable consequences in terms of increa¬ sed inflation leading to less growth and more unemployment will The Policy Response be far more costly and socially detrimental. Ministers recognised that economic and energy policies have There is no escape from the reduction of real incomes caused become inseparable. They are convinced that there is a combina¬ by higher prices for imported oil; claims for compensatory increa¬ tion of policies which can, over time, significantly ease the energy ses in money incomes will only make matters worse by and inflation constraints on economic growth and permit contin¬ aggravating inflation and increasing unemployment. ued economic and social progress. To this end they have agreed on the following guidelines for policy. Payments imbalances Policies for the Next 12-18 Months Welcome progress has been made in reducing payments imbalances within the OECD area, but they could re-emerge due Ministers agreed that: to strengths and weaknesses in countries' competitive positions, 1. The demand management elements in last year's concerted and become again a constraint on growth. action programme will be carried forward with particular emphasis on: Higher oil import bills will inevitably worsen the current account situations of oil importing countries. While existing the need for a cooling-off period in the United States to financial mechanisms seem capable of providing sufficient finance achieve an important reduction in the rate of inflation to meet higher current deficits in most cases, the resulting in- the desirability of avoiding a significant slackening of the growth of domestic demand in the rest of the OECD area, taken as There is a risk that slow growth becomes self-perpetuating. It a whole, and the role that, to varying degrees, Germany, Japan, inhibits investment and encourages defensive attitudes on the Switzerland, Belgium, the Netherlands and Austria can play in this part of Governments, business and labour such as protectionism respect and, and support for declining and inefficient activities. These reactions the need for virtually all other countries to pursue cautious generally impair productivity and sharpen the inflation constraint demand management policies in order to reduce inflation and, in on growth by raising costs and reducing the supply of available some cases, external deficits which pre-date the latest oil price goods. It makes little sense to accept the need for a further period rise. of unsatisfactory growth performance because of the inflation

2. To this end, however, effective action to reduce energy con¬ constraint if Governments then try to mitigate the effects on sumption, or increase production, or both, so as to implement the employment by measures which reduce productivity or increase costs and prices in other ways. commitments agreed to in different fora to reduce Member countries' demand for oil on the world market by some 2 mbd is Cautious demand management policies should therefore be essential.The present degree of understanding of the operation of combined with action or the unwinding of previous actions to the oil market is unsatisfactory and should be improved. improve the supply side by benefiting from lower cost imports,

3. Higher oil prices should be passed on in an appropriate man¬ encouraging investment, and facilitating necessary structural adjustments. ner to energy users in order to encourage conservation and the development of alternative energy sources. Member countries Ministers therefore stressed the importance of the special two- that have not already done so should raise the price of year programme on positive adjustment policies just adopted by domestically produced oil to the world level as soon as possible. the Organisation (See page 34 .). All competent bodies of the

4. Important efforts will be made to gain acceptance of the fact Organisation will pay special attention to policies in their field of that the rise in oil prices reduces, for all social groups, the scope competence which have an impact on structural change. A special for higher real incomes. group of senior officials has been created to keep under review the macro-economic and international consequences of measures 5. An assessment is being made, as a matter of urgency, of the promoting or hindering necessary structural adjustments in the progress that countries have made towards reduction of oil de¬ field of manpower, industrial, agricultural, regional, trade and mand, and, under the direction of the Economic Policy Com¬ other policies. mittee, of the macro-economic consequences of the energy situa¬ tion. When these have been completed, the Organisation will ex¬ Positive adjustment should rely as far as possible on market amine the implications for demand management policy. If forces to encourage mobility of labour and capital to their most effective energy policies are not being implemented and sub¬ productive uses. Measures to help sectors or firms in difficulty stantial further oil price increases have occurred, growth ob¬ should be temporary and integrally linked to the implementation jectives for 1 980 will have to be reduced. Failure to limit the pass- of plans to phase out obsolete capacity and re-establish financia¬ through of higher oil prices into higher money incomes could also lly viable entities. Positive adjustment can be facilitated by the make more cautious demand management policies inevitable. dissemination of better information on the costs and benefits of government measures, proper consultation between labour and 6. Close monetary co-operation, including through arrangements management, vigorous action to maintain competition and curb agreed between the United States, Germany, Japan and Switzer¬ monopoly power, policies that encourage research, innovation land, through the European Monetary System and through the IMF, will be continued. and investment, well designed regional policies, and efforts to avoid unnecessary regulation and reporting requirements.

Policies for Overcoming the Medium-Term Ministers also reaffirmed their attachment to an open world Constraints on Growth trading system and their determination to continue to fight against protectionism in all sectors and to work towards im¬ The Inflation constraint provements in the system. They therefore:

Although there are differences between Member countries in 1. Welcomed the completion of the Multilateral Trade the success they have had in restoring the conditions needed for Negotiations, and stressed the need for timely and effective im¬ sustained non-inflationary growth, improved economic plementation of the results.

performance requires consistent and sustained attention to the 2. Extended their 1974 Trade Declaration (the "Trade Pledge") price stabilization objective. Countries where domestic pressures for an additional year (See OECD Observer, N°75, May-June on the price level have been reduced are better placed to increase 1975.). economic activity and reduce unemployment. Other countries 3. Agreed to make particular efforts in the work of the Organisa¬ must concentrate on achieving better price stability; as they tion in the coming year to study the problems of agricultural trade. succeed in this they will create the conditions for sustained Ministers agreed that better functioning of commodity markets, growth, and policies can become more growth-orientated. including improved market access and security of supplies, would Better price performance requires cautious and steady benefit both consumers and producers and reduce one potential

monetary and fiscal policies. Budget deficits should not exceed source of inflation. any excess of savings in the private sector. Where rising taxes and There was broad agreement on the need, in appropriate cases, social security charges have generated inflationary pressures, the to pursue efforts to promote higher employment, particularly share of public expenditure in GNP will have to be restrained. among the disadvantaged groups.

Better price performance also requires further efforts to seek 1 . There may be scope for modifying hiring practices in the public greater consensus and where appropriate modify wage and price and private sectors to alleviate the problems of youth and dis¬ setting behaviour to restore the profitability of productive invest¬ advantaged groups and to respond to the growing demand for ment, ease inflationary pressures caused by the wage-price spiral, flexible part-time job openings. The Organisation should study the and facilitate necessary changes in relative prices and the possible role of marginal employment subsidies, and of shifts structure of wages. away from heavy payroll taxes, as well as the impact of migration

6 tow**"* otmCES VINS 8231

Milt "*^**' - I I

< r if»«H ' '

1 bis"»-

' »«*>« ** " ,.tOt *****

Inflation and energy . fwo constraints on growth

policies on employment and the efficient functioning of labour The balance of payments constraint markets. To ease the balance of payments constraints on growth: 2. The possibility of work-sharing arrangements should be 1. Countries in a strong external position should maintain the assessed; but attempts to increase the number of jobs by momentum of domestic demand; deficit countries should con¬ accelerating the tendency towards a shorter working week have centrate on controlling domestic inflation; and exchange rates to be looked at with caution since they may have inflationary con¬ should play their proper role in the adjustment process. sequences. 2. The structural imbalances that remain call for resolute policies 3. There may be scope for expanded training and retraining to improve productivity and stimulate exports in the deficit programmes as a vehicle for improving skills and hence future countries, and policies by the surplus countries to encourage im¬ productivity, while reducing current unemployment. ports and rely primarily on domestic demand for economic Measures such as those described above should be undertaken growth. only after consideration of their possible adverse impact on 3. When current account imbalances nevertheless remain impor¬ productivity and inflation. tant, surplus countries should ensure offsetting capital outflows on a sustained basis. The Organisation is instructed to give further The energy constraint attention to these questions.

Without strengthened policies energy supplies over the World Interdependence and Relations medium run will not be sufficient to support an adequate rate of With Developing Countries economic growth. Taking into account the different situations in Member countries, Ministers agreed on the urgent need for: Ministers considered the implications of global economic 1 . A pricing and tax policy for oil and other energy, sources which trends for relations with developing countries. They reaffirmed the recognises that the long-term trend of real energy prices is almost need for strengthened co-operation with the developing countries certainly upwards, and that this expectation should become firmly which is an indispensable element in achieving more sustained embedded in the consciousness of energy users. and stable world economic growth and which provides an im¬

2. Conservation programmes based on an appropriate mix of proved basis for development policies. They stressed that in view pricing policies, voluntary programmes, fiscal incentives and dis¬ of the difficult global policy challenges ahead, improved co¬ incentives and mandatory controls where necessary; a major operation with developing countries had assumed even greater effort to increase production, trade and use of coal and gas; importance. production of indigenous oil; continued development of nuclear Ministers discussed the results of UNCTAD V. They felt that, power with the necessary safeguards, having due regard to legal although the overall results of the Conference had been limited, and constitutional provisions; major R&D efforts on new energy valuable progress had been made in specific areas. It is now es¬ techniques and renewable energy resources; and assistance to sential to continue constructive co-operation with developing non-oil developing countries in the identification and develop¬ countries in the appropriate fora and in the preparations for the ment of their energy resources. new International Development Strategy. In this connection, Ministers noted the importance of the participation of all ited Nations Conference on New and Renewable Energy Res¬ countries, including the industrialised countries outside OECD, in ources. the international development effort. Commodities Ministers welcomed the convening of the United Nations Con¬ ference on Science and Technology for Development to be held in Ministers noted with satisfaction the results of the negotiations August in Vienna as a major opportunity to promote effective in¬ on the Common Fund. They agreed to pursue, in a positive spirit, ternational scientific and technological co-operation, especially the establishment of this mechanism as well as the current dis¬ for the benefit of developing countries, and pledged to work cussions and negotiations on individual commodity agreements. towards its successful conclusion. They emphasized their interest in examining the scope for further action to strengthen food and commodity production and Ministers noted the value of pragmatic forms of consultation processing in developing countries, bearing in mind their develop¬ and co-operation with developing countries in areas of significant mutual interest. The contribution that the Organisation can make ment needs and priorities. in this regard should be actively examined. Environment Trade and Adjustment Stemming and reversing environmental degradation through An expansion of world production and trade and further deforestation, desertification and soil and water erosion is a changes in their structures are essential means to raising living matter of global concern and requires international co-operation. standards and promoting economic and social progress in Ministers recognised that developing countries have limited developed and developing countries alike. resources for such purposes and need international support.

Ministers acknowledged the desire of developing countries to Aid and Financial Resource Transfers industrialise further and to contribute a larger share of world trade in accordance with their comparative advantage. They stand Ministers underlined the importance of substantially-increased ready to assist in this process in such areas as trade, investment and stable flows of aid, finance and investment. (See page 24 for and technical co-operation. 1978 figures). Recognising the essential role of aid, Ministers called for an expanded, qualitatively-improved, and equitably Ministers stressed the importance to trade relations with shared collective effort for official development assistance. Con¬ developing countries of the general measures to maintain and cessional transfers should, as far as possible, be concentrated on further improve the open international trade system now being the least-developed and other developing countries most in need. taken. In particular they: They invited the Development Assistance Committee, bearing in 1. Underlined the significance of the new special two-year mind the studies on this subject in other international fora, to con¬ programme of the Organisation on positive adjustment policies to facilitate mutually bénéficiai structural change in production and duct an in-depth review of the scope for improved financial co¬ operation with developing countries, at adequate levels and trade. reflecting their specific development problems, including their 2. Emphasized the significance of the renewed Trade Pledge for debt problems with a view to contributing positively to the new their trade with developing countries. International Development Strategy. 3. Declared their determination to implement the results of the Multilateral Trade Negotiations and to build on these results tak¬ International Investment and Multinational ing into account the particular concerns of developing countries.

While OECD countries bear a particular responsibility in the Enterprises maintenance of an open international economic system, they The Ministers undertook the Review foreseen in the 1976 believe that developing countries, in particular those which have agreements on International Investment and Multinational reached a relatively advanced stage of industrialisation and have Enterprises(l). They noted with satisfaction that the three related shown their capacity to compete effectively on international instruments approved in 1976, dealing respectively with gui¬ markets (see page 28) should gradually take a larger part in this delines for multinational enterprises, national treatment for effort: by liberalising trade both among themselves and globally, enterprises under foreign control and with incentives and dis¬ complying more fully with international rules in this field, and incentives for investment, have demonstrated their effectiveness more generally adopting policies contributing to satisfactory trade as a framework for strengthened international co-operation in and payments relations. matters related to international investment and multinational

Energy Co-operation enterprises not only for the Member governments but also for the business community and the labour organisations. Ministers reaffirmed their willingness to contribute to Ministers affirmed the continued commitment of their international energy co-operation among developed and develop¬ governments to the 1976 Declaration. They agreed to steps ing countries and to discuss energy questions of mutual interest designed to further strengthen the effectiveness of their co¬ with oil-exporting and oil-importing developing countries. They operation in future (see page 39). In this connection, as regards welcomed the adoption by the World Bank of an energy the guidelines for multinational enterprises, where one addition is programme which should serve to strengthen the domestic being introduced, the follow-up procedures at national and inter¬ energy production of oil-importing developing countries and national levels are to be strengthened and developed further noted related activities by other international and regional in¬ through additional arrangements for consultations with business stitutions. They stressed the urgency of examining with interested and labour and for reporting. Ministers also approved new work to developing countries the scope for strengthened co-operation to be undertaken on the use of investment incentives and dis¬ identify and develop these countries' energy resources. They incentives and the international repercussions on other countries welcomed the report of the OECD Council Working Party es¬ of such measures. tablished last year to develop a co-ordinated effort to help

developing countries to bring into use technologies related to (1) Except the Turkish Government, which had not participated in the renewable energy, especially in the light of the forthcoming Un 1976 Declaration and abstained from the Decision.

8 Highlights from

OECD ECONOMIC OUTLOOK

JULY 1979

International Oil Markets: The Implications of Recent Decisions

The assessments contained in the Economic Outlook which follows have to be interpreted in the light of the decisions taken by OPEC in Geneva and by the Summit in Tokyo after the Economic Outlook went to press on 11th June. The Geneva decision, iffully adhered to until the end of the year, raises oil prices by about 1 7 per cent above the level in¬ corporated in theforecasts whichfollow. The price ofoil will thus have risen by about 60 per cent between December 1978 and early July. The average price that OECD countries payfor imported oil over 1979 as a whole may thus be about 35 per cent higher than during 1978, compared with the 23 per cent assumed when the forecasts were made. As a result, OECD's inflation will be higher, growth slower, and current accounts in smaller surplus or larger deficit, than originally forecast. The extent of the changes cannot be forecast with precision. Weaker growth might constrain the rise in oil prices. The level of OPEC oil supplies is subject to some uncertainty. The decision at Tokyo to take important measures to curb OECD oil imports will have important effects between now and 1985, but it is not yet clear how much limitation will be seen over the twelve months to mid-1980 to which the present forecasts apply. A special section on " The Oil Situation " suggests how the purely mechanical effects of an oil price rise can be assessed. Applying this method of calculation, and allowing for the timing of the latest oil price rise, the forecasts for the OECD area as a whole over the next twelve months should be adjusted as follows: Inflation, as measured by domestic demand deflators or consumer prices, could be pushed up by about a percentage point, to a 10 per cent annual rate in the secondpart of this year and to around 9 per cent in thefirst part ofnext year. However, if wages were, as in recent years, to rise in sympathy, the inflationary impulse would be higher and next year's deceleration jeopardized. The current account of the balance ofpayments is likely to move into substantial deficit in the remainder ofthis year, perhaps an annual rate of around $40 billion rather than the $20 billion forecast. It mayfall to an annual rate of $30 billion in thefirst part of next year, when OPEC imports increase in response to higher earnings. The annual oil bill of the non-oil developing countries is likely to be increased by around $3 billion. GNP growth, essentially because of the deflationary effect on demand of unspent OPEC earnings, is likely to be reduced to around 2 per cent, rather than the 2V* per centforecast. Because of the terms of trade loss, real income is likely to grow even more slowly, at around lVi per cent. But this purely mechanical impact of higher oil prices on demand may be aggravated by other influences. The possibility that de¬ mand will be weaker than assumed because of waning confidence in the private sector, a tightening of macro-economic policy, or a more marked slowdown in the United States is discussed in the Outlook. Given the size of the recent oil price rise, this possibility would now seem to be greater. The rise in OECD activity over the next 12 months could thus be lower than the 2 per cent suggested above.

The latest indicators for the United States suggest that the forecast slowdown is indeed imminent. There must be a risk, particularly given the latest oil price rises, that it will be somewhat deeper than has seemed likely to date. In other OECD countries, loss of confidence could result in higher personal savings ratios and weaker business investment. These suggestions are proffered with reserve, for experience has shown that, for a few quarters at least, behaviour can be apparently perverse. Following the 1973/74 oilprice rise, savings ratiosfellfor two quarters or so, as consumers sought to cushion thefall in their real incomes, so that it was not until after the first half of 1974 that weaker personal sector expenditure and business investment seriously depressed GNP. Nonetheless, given that the increase since December in the oil bill relative to GNP is now about half as large as the massive rise in 1973/74, there must be a risk that, at least by thefirst halfofnext year, the OECD economies will be depressed by more than a simple mechanical calculation, which does not take account of confidence factors, would suggest. There are a number of implications for policy. First, the inflationary effects of higher oil prices can be greatly exacerbated if there is an attempt, almost certainly self-defeating in the longer-term, to redress an oil-induced terms-of-trade loss by raising nominal incomes inside the OECD area. It must be a major aim ofpolicy to avoid the pass-through of higher energy prices into money incomes. Second, while any one country can improve its current account through deflation ofdemand, this option is not open to the area as a whole, unless the deflation were sufficient to reduce the oil price substantially. This would probably imply a slowdown that on other grounds would be considered unacceptable; economising on energy use would be greatly preferable. Third, ifpolicies in OECD countries allow the real price ofoil to weaken, as happened after 1973/74, the incentive to conserve energy and reduce dependence on imported oil will be weakened because misleading signals will be sent to users and indigenous producers. It was in this way that four or five potentially valuable years were largely wasted, from the point of view of energy policy, with the result that the OECD economy today is not well prepared to withstand a relatively modest shortfall in the supply of energy.

4th July 1979

The events of the last year or so have accelerating inflation that the United States times and imparting periodic inflationary been marked by a number of encour¬ has had to opt for a period of much slower shocks to the world, has on balance ensured aging features. The evidence suggests growth. And it is because of the obstinacy of a reasonably steady supply of key industrial that restrictive demand management can help inflation that the countries identified earlier inputs at a real price which, averaged across reduce high inflation and that, in suitable as " convalescent" have had to remain in commodities, has shown little trend rise over circumstances, expansionary fiscal policy has that category. The aims of economic policy the post-war period. its desired effect on real demand and output. are now further jeopardised by the energy The present energy situation, however, is When conditions have been appropriate, ris¬ crisis that surfaced five years ago but then different. A shortage of supply, such as the 2 ing capacity utilisation has brought forth an became temporarily dormant. million barrels a day (mbd) shortfall which increase in productive investment, and ex¬ For the first time since the days of im¬ followed the Iranian disturbances at the end change rate changes have helped to produce mediate postwar recovery, there is now a of last year, does indeed drive up price, all important equilibrating movements in very real risk that the short and medium-term the more so because there is no readily payments balances. Traditional tools of growth of living standards and employment available substitute. But the short-run supply macro-economic policy, appropriately used, will be constrained by availability of a key in¬ response of oil to higher prices is very much remain effective. dustrial input energy. Supply shortages of lower than for other raw materials, because industrial raw materials have developed most suppliers are already producing at or But events have also confirmed the view before. But consequent sharp increases in near desired capacity rates, and supply that a major obstacle to further reduction of price have typically resulted in a marked in¬ policy in Saudi Arabia seems to have unemployment and increase in living stan¬ crease in availability, and thereafter a fall in changed. Prospects for OECD growth dards is inflation. It is because of price. This mechanism, though chaotic at therefore now depend importantly on the

0GROWTH OF REAL GNP/GDP IN THE CONSUMER PRICE INDICES^ OECD AREA (a) OR PRIVATE CONSUMPTION DEFLATORS

Percentage changes, seasonally adjusted at annual rates

(a) 1976 averages were obtained by using were used. (c) Half-yearly data must be interpreted 1976 GNP/GDP weights and exchange (b) 1976 growth rates and changes were with care, since eight of these countries, rates; from 1977 onwards, 1977 weights taken from Economic Outlook No. 23. amounting to over 40 per cent of the total

10 likely supply of energy and the efficiency about 23/4 per cent and permit some very despite the higher oil bill. The increase in the with which it is used. necessary rebuilding of stocks, perhaps oil price over 30 per cent at the time of beyond their end-1978 levels (1). An in¬ writing is the main factor underlying the The Oil Supply Outlook termediate possibility, with oil conservation forecast deterioration of the OECD area's amounting to about 3Vi per cent, would just current balance from a surplus ofS 6V2 billion An examination of the probable about permit GNP growth at the rate in 1978 to a deficit of around $ 15 billion this

development of OECD indigenous energy forecast in the present outlook and the year. sources and OPEC production levels, assum¬ restoration of the end-1978 stock levels. The The latest manifestation of the energy ing exports from Saudi Arabia and Iran at lower the conservation achievement, the crisis has occurred at a time when inflation is 8V2 mbd and V/i mbd respectively, suggests more danger there would be that rising infla¬ still a major problem for the OECD that over the forecast period to mid- 1980 oil tion and falling confidence would push the economy taken as a whole. The 1972-73 supplies available to OECD could indeed be OECD area into recession. boom and sharp rise in commodity prices set a limiting factor. The OECD countries in motion successive rounds of nominal in¬ appear to have become more efficient in their The Prospects for Aggregate come increases that became disturbingly use of fuel, so that a 1 per cent increase in Demand and Inflation well-established in many countries. Certain GNP now necessitates only a 0.8 per cent in¬ countries arrested the spiral. Japan brought crease in energy use (compared with a ratio The Secretariat's present forecasts thus down the rate of growth of money wages to of about one to one before 1973). Even so, in assume no serious or protracted interruption around 6 per cent last year. In Germany the absence of special conservation efforts to the supply of oil and a high degree of wage inflation was also substantially such as those agreed upon in the Internatio¬ success in achieving the immediate oil con¬ reduced, and until the latest oil crisis, the rise nal Energy Agency, further violent price servation target, so as to avoid further large in consumer prices was down to 2-21/2 per changes would be probable unless GNP increases in the price of oil and a conse¬ cent. Switzerland, Austria and the Benelux growth in the OECD area as a whole was quential weakening of either business con¬ countries also brought inflation under con¬ kept down to only about IV2 per cent from fidence and investment, or personal sector trol. But most other countries have been far mid- 1979 to mid- 1980 and it is unlikely that confidence and consumption. In aggregate, OECD GNP is forecast to slow down from less successful. In particular, the acceleration policy could accomplish such a slowdown. of the underlying rate of inflation in the Un¬ the 3'/4 per cent growth likely to have been On the other hand, attainment of the full 5 ited States is a serious international problem realised in the first half of this year to 2Vi to per cent saving on oil consumption aimed at given the weight of the United States in world 3 per cent through the period to mid- 1980, over the period to mid- 1980 would allow production, commodity demand and trade. largely because of the developments expected GNP to grow as currently forecast by in the United States. (See Table 1.) One sign that high inflation risks becom¬ ing entrenched in the system is that last With this overall GNP development, the year's substantial terms-of-trade improve¬ pattern as between countries seems likely to ment for OECD, which probably added a full TOTAL DOMESTIC DEMANDS be much as envisaged under the concerted action on which OECD Ministers have percentage point to real income growth in the second half of the year, was not accompan¬ agreed. Domestic demand in the United ied by a major deceleration of the price rise. States is forecast to slow markedly in the / / yy // In recent months, the renewed increases in oil / yz // latter part of this year, and then to pick up a I / > / / and other commodity prices have led to a little in early 1980. In the remaining OECD 7 I £ / / y 1 / & widespread acceleration of consumer price / 5" / f5 7 § 1 / > countries, considered as a group, domestic / 1 rises. For the area as a whole, the increase in 18 /$ demand growth at around 3Yi per cent 1979 may be perhaps a full percentage point through to the middle of next year is ' / 8 / above the 6.9 per cent recorded in 1978. (See forecast. It seems clear that the balance of / S' .è / ° 70^/ v à. Table 1.) More revealingly, a strong risks attaching to these forecasts is on the acceleration is expected during the year, to a downside, because of the possibility of 1 K s^ / A^ / ° / N rate approaching 9 per cent. / 0 I stronger inflation rates and of the effects

5.0 5.7 3.5 4.5 5.4 these and the energy situation could have on business and consumer spending. (See The Risk of Excess Demand 1.5 3.7 1.5 2.1 3.4 Table 1.) for Oil 3.2 4.2 1.1 3.5 3.7 Shifts in the international pattern of Any substantial excess demand for oil, 3V2 m 3 4'/4 m domestic demand growth, together with the whether during the forecast period or exchange rate changes of the last couple of beyond, will have serious implications for in¬ 2.7 3.2 3.6 3.2 3.2 years, have markedly improved the distribu¬ flation and, hence, the level of demand. Es¬ tion of current balances between the United 1.2 4.1 1.0 1.9 3.6 1 timates of the short-run price elasticities of 1.0 3.6 0.4 1.5 3.1 States and Japan. The Japanese surplus on supply and demand for energy are uncertain, m current account has for the moment almost 3.6 4.0 1.0 3.8 3.5 but it is clear that the values are low. The 2 f disappeared, and the United States deficit has 4.6 5.4 2.2 5.1 4.9 mbd shortfall following the Iranian dis- been halved since the first half of last year. 3'/4 3'/2 IV* 4'/4 m ¥ Except for a reduction in Germany's sur¬ 3 2 3'/4 3'/4 2Ya (1) End-1978 stock levels were equivalent to 75 ¥ plus, however, little further change in the dis¬ days' supply; stocks had been run down to about 3 2'/2 3 3'/2 2Vi F tribution of surpluses and deficits between 65 days' supply by the end of the first quarter of 1979, compared with the minimum of 60 days' OECD countries is expected over the supply thought to be necessary for the efficient GDP of the smaller countries, half-yearly forecast period. Part of the yen appreciation operation of the distribution system and to the growth rates were obtained by a purely has been reversed, so that Japan's surplus 90 days' supply which is the International mechanical interpolation. could start increasing again later this year Energy Agency's long-term target.

11 2. THE 1976-1980 GROWTH SCENARIO than the short-term values, this would be an FOR THE OECD AREA extremely inefficient way of adjusting to ex¬ cess demand for energy, for the resjDonse Projections and likely outcome might substantially overshoot what would be Recent Trends and Earlier Trends appropriate on longer-term considerations. Prospects Instead of an orderly adjustment to a change 1975-1980 in relative prices, there would be a new explo¬ £ sion of inflation followed by recession. Another alternative would be to deflate I

Employment 1.0 0.7 -0.8 1.4 1% balance in the energy market cannot be restored by policies which ensure sufficient Unemployment rate(a) 3.4 3.6 5.3 5.1 supplies of energy and adequate efficiency in its use, aggregate demand may have to be Change in GNP/GDP deflator 7.6 11.9 11.5 7.5 trimmed costly as this would be in or¬ der to avoid disruptive inflation. Current balance ($ billion) 9.6 -27.6 0.2 6.4 IVi The Medium-term Constraints Note: The 1976-1980 projections were established by the OECD Secretariat in early 1976 and were on Growth presented in a special supplement to Economic Outlook No. 19. They were not conceived as forecasts but rather as an illustration of a growth path consistent with non-inflationary economic recovery, (a) Seven major OECD countries. Inflation

Most governments find the risk of turbances, for example, has almost certainly built up a large deflationary surplus. And perpetually high or re-accelerating in¬ been responsible for much of the 30 per cent since the longer-run elasticities are larger flation a major constraint to the adoption of or so increase in crude oil prices seen up to now, and there could be further increases to come. Each 10 per cent increase in the price 3. REAL WAGE GAP (a) of oil adds, mechanically, about V* of a per 1972= 100 cent to the general OECD price level, and when likely and desirable sympathetic rises in the prices of other forms of energy # are taken into account, this figure could be £ $ £ V ^ around V* per cent, spread over 1-2 years. Moreover, there will be a great danger that the effects of higher oil prices will add to the United States 98.4 98.9 97.8 96.9 96.9 98.5 rate at which money incomes increase, Japan 104.3 108.8 112.0 109.2 109.3 106.3 thereby imparting further strength to the in¬ Germany 100.7 103.7 102.2 98.5 98.9 97.7 flationary spiral. Hence the importance of France 101.5 104.6 106.8 104.4 105.3 104.4 avoiding attempts, which cannot succeed for United Kingdom 100.7 107.9 112.6 107.3 103.4 103.2 long, to escape from a terms-of-trade loss by Canada 98.2 99.7 104.3 105.8 107.0 105.1 pushing up wages or other incomes. Italy 102.4 102.8 106.7 105.4 106.5 104.9

Under present circumstances, the only Austria 99.7 100.5 104.3 101.2 100.4 103.9 acceptable way of avoiding potential excess Belgium 101.2 104.3 113.0 110.1 112.0 113.3 demand for oil is through micro-economic Denmark 104.9 104.9 108.4 105.4 99.2 93.9 efforts to reduce energy use and to ensure Finland 99.6 102.5 103.7 104.0 95.4 90.9 continuity of supply at or above prevailing Ireland 101.2 110.7 115.2 113.0 112.8 117.0 levels. The alternative courses would be very Netherlands 98.1 101.4 103.2 99.4 97.6 99.1 costly: Norway 99.4 100.2 105.3 105.6 108.5 106.9 One alternative would be to take little or Spain 100.3 101.5 100.4 101.8 101.3 99.8 no action, leaving the problem to be sorted Sweden 97.0 96.3 97.7 99.6 104.3 100.8 out in the market. This would result in an un¬ Switzerland 102.1 103.1 105.1 104.1 102.9 100.5 acceptable boost to inflation which would not Australia 104.0 112.6 110.2 110.0 111.2 108.9 solve the underlying problem. In the short New Zealand 98.3 109.4 111.6 106.6 107.5 109.8 1 run, little additional supply would be forth¬ coming, so that the major response would be (a) Difference between real wages and salaries per head of dependent employment and terms-of- deflation of OECD area demand, both trade-adjusted real GDP per head of total employment. Adjusting for the number of hours worked directly through the effect of higher oil prices would yield a somewhat modified gap series. For example, in the case ofFinland this would result in reducing real income, and indirectly in a smaller negative real wage gap. through the balance of payments as OPEC Source: OECD.

12 more expansionary policies and would not be now reached proportions where, despite 4 mbd will have to be made double the prepared to opt for growth aims that com¬ recognition of the counter-cyclical role of conservation aim for 1979 and more than plicated the task of bringing the price rise fiscal policy, governments see little room for double if a safety margin is to be provided. down to acceptable levels. Continued high in¬ tax or expenditure changes to support flation is more likely to lead to job losses aggregate demand (see Tables 3 and 4). Payments imbalances than gains in the medium-term. Thus it is not sufficient to aim merely at an international A number of countries are also likely to Energy convergence of inflation rates. continue for some years to be faced with The Western world's energy balance sheet The forces at present making for high in¬ balance-of-payments problems, despite the to 1985 suggests that, if growth in the OECD flation are clearly stubborn. In most recent movement towards lower surpluses area remained around 3Vi per cent, world de¬ countries (the United States is currently a and deficits. Developments during the past mand for OPEC oil would rise by about 5-6 major exception) they reflect simple few years suggest that there may be limits to momentum rather than excessive demand: mbd, given likely domestic supplies of energy the progress that can be made through and present consumption habits. This might once a sharp rise has been set in motion, all differential demand management and real ex¬ just be possible, although accidents on either change rate adjustment. Important structural income groups seek to resist any erosion or future erosion of their real earnings the supply or the demand side would make factors making for imbalances may continue impracticable even this modest GNP growth for some time even if strenuous efforts are from any source. And the effects of powerful (which would probably be insufficient to pre¬ wage/ price and wage/ wage interactions have now begun by surplus and deficit countries vent rising unemployment in most OECD been accentuated by a slowdown of alike to reduce them by basic adaptations of countries). To raise GNP growth to, say, AVi policy. The impact of the higher oil bill will, productivity advances that in many cases per cent would, given present consumption moreover, fall unevenly, and some countries cannot fully be explained by cyclical factors habits, push the world demand for OPEC oil alone. Under these conditions, it is not sur¬ may find some difficulty in financing their up by 9-10 mbd, and there seems at present additional deficits or simply not wish to prising that in a number of countries increas¬ no likelihood that increased oil supplies of increase their existing foreign indebtedness ing demand in recent years has raised output this order of magnitude will be available. If, substantially. less and prices more than expected at the therefore, the OECD area is to grow at beginning of the recovery. Indeed, as can be anything like a satisfactory rate in the seen from the accompanying Table 2 the Capital stock medium-term, additional increases in indigen¬ performance of the OECD economy taken as ous energy production and economies in Another factor retarding restoration of a whole during the period 1975-80 is likely to energy use in relation to GNP totalling about high employment levels in some countries prove decidedly less favourable than envisaged in 1976 in terms of output, price stability, unemployment and international 4. FINANCIAL SURPLUS (+) OR DEFICIT (-) payments equilibrium. OF GENERAL GOVERNMENT, 19 OECD COUNTRIES The OECD averages in the table conceal percentages ofGDP important inter-country differences. By 1978 very big employment gains had been r / Average ////// achieved in the United States (accompanied by a very weak productivity performance) / & /V /V /V / <$ / ^ / $ A and some smaller European economies. In¬ flation had been brought down below the / average of the 1960s in a few countries, 2 "5 B Australia + 1.5 + 1.8 +0.4 -0.8 -0.7 -1.8 notably Japan, Germany and Switzerland. Austria -0.1 n.a. +0.4 -2.8 -3.7 -3.4 -4.1 1 Nonetheless, the general performance is Belgium n.a. -3.7 -3.0 -5.3 -6.0 -5.8 n.a. disturbing. Recent trends and indicators Canada +0.8 +0.6 + 1.9 -2.4 -1.8 -2.6 -3.5 1 suggest that the chances of achieving rea¬ Denmark(a) + 1.5 +3.7 + 4.8 -2.2 0 -0.1 n.a. sonable price stability and restoring Finland +2.4 +4.7 + 3.9 + 2.7 + 5.6 + 3.9 n.a. sustainable growth and full employment by France +0.4 +0.8 +0.6 -2.2 -0.5 -1.3 -2.4 1 the middle of the next decade are not good. -2.6 -2.7 1 Germany -0.2 +0.3 -1.4 -5.8 -3.6 The beneficial effects on prices, real demand Ireland -3.5 -4.1 -8.1 -11.9 n.a. n.a. n.a. and the balance of payments resulting from -8.1 -10.6 1 Italy -2.8 -5.4 -5.9 -11.7 -9.1 favourable terms-of-trade movements are un¬ -3.9 -4.8 1 Japan(i) -2.7 +0.9 +0.4 -2.7 -3.6 likely to continue. And domestic factors un¬ Netherlands -1.0 -0.1 -0.1 -2.7 -2.7 -2.4 -3.3 1 derlying high inflation in the OECD area + 2.8 + 1.0 n.a. Norway n.a. +4.3 +4.7 + 3.8 may not weaken significantly until there are Portugal n.a. + 1.1 -1.6 -5.5 -7.1 n.a. n.a. fundamental changes in income bargaining n.a. n.a. / Spain n.a. +0.3 +0.1 -O.l +0.3 attitudes, price-setting behaviour and a rever¬ Sweden + 3.9 +4.6 + 1.9 +2.9 +4.7 + 1.8 -1-6 I W sal of the apparent slowing-down of Turkey -1.8 -0.5 n.a. n.a. n.a. n.a. n.a. wg productivity trends. -3.2 -3.9 W United Kingdom -0.9 -0.7 -4.1 -4.8 -5.0 -0.2 +0.5 -3.5 -1.4 -0.3 +0.3 W Many countries are still suffering from the United States 0 legacy of real-wage increases over the last (a) Data based on the old set of national accounts; ratios on the new basis, not available. few years that are excessive in relation to the (b) Data prior to 1970 based on the old SNA and including some public corporations and present low underlying increase in government enterprises; ratios after 1970 conform to SNA definitions. productivity and terms-of-trade changes. (c) Provisional. And in many countries budget deficits have Sources : OECD, National Accounts; Eurostat, National Accounts ESA ««^National data for 1978.

13 may be insufficient capital stock. Low invest¬ many countries, entail risks of inflation that need to induce important changes in ment in productive capacity during most of were unacceptable. Inflation would not behaviour patterns and relieve structural con¬ the 1970s, shifts in relative factor prices and necessarily get out of control. But it would straints before they can move back on to demand, and the fact that part of the existing seem unlikely that there would be any break better growth paths and regain high employ¬ capital stock is probably now unutilisable, in present inflationary trends and little, if ment. There are, indeed, a few countries with may face these countries with a serious any, hope of winding-down the price/ wage impressive price stabilisation records Ger¬ problem of potential capital shortage relative spiral. Indeed, the experience of past business many and Japan among the larger countries to the growing size of the labour force. The cycles calls seriously into question the view where the appropriate growth track may build-up of a capital stock sufficiently large that inflation will keep decelerating during well already be above the potential output to eliminate labour market slack by, say recovery periods, even if there is considerable path because the danger of an important 1985, would require rates of productive in¬ slack in the economy. It would seem more cyclical re-acceleration of prices before com¬ vestment which are sometimes implausibly likely that the immediate beneficial effect on pletion of the recovery seems small. high, both from the point of view of supply of costs of higher productivity would later be However, the role that countries with good equipment and demand. outweighed by pressures on wages and com¬ inflation records and strong payments modity prices. In many cases, the inflation In many of the countries which have not positions can play in stimulating world-wide rates likely to accompany such a growth been able to follow expansionary policies recovery may become more limited the path, given present behaviour, might well recently, the continued" growth pessimism" longer their partners in world markets have frustrate the growth aim itself. on the part of business a major factor un¬ to keep demand severely reined in. Some of derlying investment reticence often On the other hand, a continuation of un¬ them have, for historical reasons, economic reflects weak profitability, increased un¬ satisfactory growth in the OECD area as a structures which are highly export-oriented. certainties concerning the policy framework whole would carry with it a number of other and will only progressively be able to re¬ within which business has to work, and fears unfavourable features and risks. Slower real shape them. What will determine the concerning the emergence of new internatio¬ income growth would accompany continued progress of living standards and job nal competitors and sharp shifts in relative high and perhaps growing labour opportunities over the new few years will be competitive positions. The failure to adjust market slack, with a disporportionate part of the degree of success that the less successful real income claims to the reduced scope for it falling on youths and other disadvantaged countries have in reducing inflationary real national income growth, and the groups. At best, productivity trends would behaviour. resulting excess level of real wages, also serve remain depressed by historical standards, If a first recommendation must be that de¬ to depress profits and investment decisions. with low levels of investment which, inter mand management policies have to remain Increasing uncertainty concerning the price alia, tended to increase the problem of un¬ cautious, the experience of the countries that and availability of energy, and possibly the employment associated with capital have already achieved good price price of other material inputs, works in the shortage. performance suggests that an essential ad¬ same direction. junct to prudent monetary and fiscal policies When lower inflation began to allow more lies in broad political efforts to obtain better expansionary policies, these could then risk The Scope for Progress consensus regarding the determination of in¬ engendering bottlenecks, and new inflation, comes. Attitudes towards temporary prices It is sometimes argued that policy action long before full employment had been and incomes policies are, often and un¬ which had the more or less immediate effect restored. The OECD area's current balance derstandably, sceptical. But the desirability of raising growth rates a " dash for free¬ would strengthen, but slower growth of world of more permanent mechanisms and in¬ dom" would itself ease some of the con¬ trade would adversely affect the prospects of stitutions seems clear. the less-industrialised Member countries and straints with which higher growth is currently The chances of obtaining better consensus faced. Certainly, substantial productivity the non-oil developing countries. And it on income distribution and the scope for real gains could result from more efficient use of could be that, given low external demand, in¬ income rises are likely to increase if all the employed labour force and existing plant dustrialised countries with weak payments aspects of policy, and all postulated or capacity, from higher levels of productive in¬ positions would find their adjustment tasks envisaged claims on resources, are discussed vestment, and from faster structural shifts more difficult. It might become harder, rather against a medium-term framework. A topical towards high productivity sectors. With an than easier, for some countries to achieve example is the need to accept that the scope investment-led recovery, there would be less their aim of reducing budget deficits as a for real income gains is limited by the terms- need to run high budget deficits over the proportion of GNP. There would be a grow¬ of-trade loss resulting from higher oil prices: medium term even though additional demand ing risk of rising protectionism, defensive in default of this, there will be a ratcheting-up support might have to be provided to achieve arrangements for preserving old jobs rather of the wage-price spiral as all groups in the " take-off". (The closing of the private than creating new ones, and attempts to society attempt to protect themselves. What, sector's deflationary investment-savings gap redistribute the existing amount of work more generally, is required, is a process is indeed a pre-requisite for enabling among the expanding labour force, leading to which can identify the implications of diffe¬ governments to withdraw fiscal stimulus and a lasting deterioration of productivity trends without a similar decline in material rent rates of income growth and facilitate to benefit from automatic stabilisers.) A more informed discussion of the nature of the stronger growth, if widely shared, could help aspirations. Conflicts over income distribu¬ choices involved and the appropriate to alleviate the problems of less-industrialised tion could grow, and the fabric of internatio¬ countries inside and outside OECD and to nal cooperation could be damaged. response to necessary relative price changes. lessen disparities in external positions bet¬ The basic message underlying the above ween OECD countries, provided that infla¬ considerations is not that achievement of Structural and tion differentials were offset smoothly by ex¬ more satisfactory growth rates has to be Micro-economic Policies change rate adjustments. regarded as impractical and that countries But immediate attempts to achieve a more have to resign themselves to persistent slow Many countries may have to go through a ambitious growth path would probably, in growth. It is, rather, that many countries further period in which growth will be lower

14 than they would have wished. It is essential with a long lead time, will depend both on business confidence both in depreciating and that this period be used constructively by meeting reasonable environmental standards appreciating countries simultaneously. Given applying policies designed to reduce the con¬ and on guarantees of additional long-term low profitability in a number of countries, as straints on growth rather than to perpetuate demand. well as high risk premia, more direct mea¬ them. Energy policy stands out as an Delay in enacting energy measures will sures to encourage investors permanent obvious area of importance. But there is a frustrate the efforts of governments to tackle tax incentives and special facilities for the wide field of other policies where action on the other constraints, particularly inflation, provision of finance may be appropriate. the supply side will determine whether the which inhibit growth. But quick action now, One area where the stagflation trap may basis for faster growth is to be built, or sustained over the medium-term, should at be particularly dangerous concerns efforts to whether OECD economies are going to get least make it possible to lift the constraint of create jobs in an environment of labour locked into low productivity and retreat from energy supply on the ability of the OECD market slack. With persistent labour market the market system. area to grow over the medium-term at slack, attention tends increasingly to be given something like the AVi per cent rate needed if Medium-term energy prospects are such to ways of reducing labour-saving invest¬ that a major policy effort has to begin im¬ substantial inroads into present high levels of ment, increasing the obstacles to lay-offs, mediately. On the conservation side, persua¬ unemployment are to be made. The progress restricting entry into the labour market, being made should be the subject of frequent sion through price would seem to be a pre¬ protecting exposed industries against imports requisite. The 1973-74 price rise initially review by OECD governments. and subsidising declining sectors. But the provided an incentive to economise on In addition to general fiscal, monetary and attraction of such propositions reflects basic energy, and indeed energy use in relation to incomes policies, and energy policy, reduc¬ misunderstanding of the problem today. The GNP has generally fallen. But the years of tion of inflation and maintenance of a problem is not simply that it is difficult to subsequent rather slack growth contributed satisfactory productivity performance may create new jobs, but rather that it is difficult to a misleading period of weakening real oil require action in three important areas: to expand employment without adding to in¬ flation. Anything that adds to inflation, prices. In some countries, with strongly- Promotion of competition in goods and rather than helping to overcome it, pushes appreciating currencies, the price of energy- factor markets. This calls, inter alia, for a sustainable job-creation further into the related products has indeed fallen in relation phasing-out of defensive measures which future. Policies designed to preserve existing to the general price level, and in a number of support less efficient firms or sectors non- jobs by protection and to redistribute the others the real price of energy is only slightly tariff barriers, government aid to various social and financial burden of unemployment higher than in 1973. lines of activity," voluntary" restrictions and risk being self-defeating, leading to more in¬ cartelisation of international trade and for In the absence of a big rise in the real price flation and less real income and output. If movement away from systems designed to of energy, it is difficult to envisage either in¬ governments accept the need for temporary support incomes in particular sectors by dustry or households seriously economising slow growth because of the inflation con¬ price support or trigger-pricing mechanisms. on its use, because higher nominal prices get straint, it cannot be appropriate for them to Certain modifications of existing minimum lost in the general inflation. In the long run, seek to soften the effects of slow growth by wage arrangements which reduce market the real price of energy will surely rise. What measures which steepen the rise in costs. In¬ flexibility might also be appropriate. Apart is important from the point of view of secur¬ terim steps to relieve unemployment have to from permanent, positive welfare effects, ing orderly energy markets is that avoid compounding the inflationary con¬ removal of anti-competitive practices should governments should take firm action in the straint from which the unemployment help to reduce prices and costs in at least shorter run, raising energy taxes when derives. necessary, or encouraging stockpiling of some areas, thereby contributing to a energy, to prevent any renewed cyclical slowdown of the price-wage spiral. * softening of energy prices and to make it Extension of manpower training and ** clear to the public that the need for energy mobility programmes. Reduction of mis¬ conservation is here to stay. In the short run, matches between the demand for various The immediate prospect is for rather the disincentive effects of higher prices can¬ types of labour and the supply, would im¬ moderate growth, high inflation and a not be expected to be large, but over time prove the unemployment-inflation trade-off, difficult energy market. Higher growth of they will cumulate. Through the installation since inflation is aggravated by pockets of ex¬ output and living standards thereafter and of more efficient equipment, better control cess demand for labour more than it is a sustained reduction of unemployment apparatus, the construction of smaller and damped down by pockets of excess labour. depend crucially on better price performance more economical cars and so on, the effects Moreover, manpower training helps to and effective energy policies. There are could be large. equalise employment opportunities and to probably no quick or easy solutions to these Scope for increased indigenous supply in raise job qualifications. The functioning of twin problems. The fight against inflation re¬ the OECD area exists if suitable policies are the labour market can also be improved if quires continuing caution in the design of enacted. The main immediate sources are more account is taken of the requirements general policy and active efforts to raise gas, oil and coal. In the United States, and capacities of different types of labour productivity and encourage positive adjust¬ progressive decontrol of oil and gas prices when wage structures and conditions of work ment. At a technical level, the essentials of could arrest what might otherwise be a are negotiated. energy policy in which use of the price decline in domestic production. Substantial Improvement of the investment climate. mechanism has a major role to play are coal reserves exist in a number of Member Apart from sustaining a reasonable level of clear, but they need to be applied on a coor¬ countries, including the United States, overall demand and reducing the inflationary dinated international basis if they are to Canada and Australia. Indeed, there are content of demand and income support mea¬ succeed. OECD governments cannot avoid currently excess supplies of coal; what is re¬ sures, it is important to ensure a smooth the challenge to formulate adequate policies quired is an incentive to users to switch from working of the international monetary to reduce inflation and the energy constraint, burning oil to burning coal. The exploitation system. Under-adjustment and over- and to obtain acceptance of those policies by of further coal reserves, requiring investment adjustment of exchange rates can weaken their electorates.

15 A NEW ENERGY ERA

by Ulf Lantzke, Executive Director, International Energy Agency (1 )

It is quite clear that we have now entered another era in terms of energy. Already the events in Iran can be seen as a sort of threshold like the events of 1973/74. The future may con¬ clude that the situation in Iran has set off a chain of reactions

which may have far more significance than the oil embargo of 1974.

The Background

It might be useful first to examine briefly the chronological order of the Iranian events. In late 1 978 production in Iran took a nose-dive with the result that overnight the world lost 5 million barrels a day of exports from the world's second largest exporter. By March industrialised countries were beginning to feel the pinch

(1j This article is based in part on a presentation at the Royal Institute Conference at Chatham House, 20 dune 1979.

At the latest meeting of IEA's Governing Board in mid-July a "package " of actions designed to take the pressure off the oil markets was agreed on : to accelerate demand restraint so as to ensure that the 5

per cent reduction in consumption will be achieved by October

m to work with the EEC in developing a system of reporting on the world's oil spot markets to work out a code of conduct for the oil trade in Member

countries as shiploads of oil from Iran ceased arriving. By April, as the repercussions were becoming more severe, production in Iran to set up a coal advisory board comprising in the words resumed but at much lower levels. When Iranian exports ceased, of the IEA Governing Board's Chairman, Niels Ersbo/I "the other producers such as Saudi Arabia increased production to top people in the industry dealing with production, transport, trade in and use of coal ". Members of this Board will consult make up for some losses. However, with the resumption of Iranian exports, these key producers returned to lower levels of produc¬ with and advise governments. tion resulting in a very tight oil market situation.

Overall our analysis concludes that there will be a worldwide oil shortfall of some 2 million barrels a day during 1979. OPEC has boosted prices twice raising them by 60 per cent since December of last year. The spot market has been especially volatile, with some prices reaching levels twice the official OPEC selling price.

The Impact

But beyond these short-term effects these events will have a broader impact on world energy and economic systems. First it is unlikely that future Iranian production will reach its former level of 6 mbd and will probably settle in the longer-term at between 3-4 mbd. In the meanwhile we do face the serious risk of erratic production patterns and should not preclude the possibility that Iranian production could stop overnight for a relatively long period Niels Ersb0ll, Chairman of lEA's Governing Board (left); of time. Ulf Lantzke, Executive Director of IEA Secondly the policies of other OPEC countries to invest in {right) at the meeting. greater capacity have been negatively affected. Oil producing

16 Left: The United Kingdom's programme to reduce oil imports relies heavily on an increase in North Sea production which in¬ creased 2-3 mil/ion tonnes during the first five months of 1979. The recently commissioned Sullom Voe terminal in the Shetland Islands will be Europe's largest, handling 650 tankers a day by 1980. Below: 77?e recently announced United States' programme designed to keep oil imports to 8.2 mbd for 1979 and to reduce them to 4.5 mbd by 1990 includes the imposition of import quotas for 1979 and 1980; the development of shale oil, coal, gasohol and solar power. Proposals for expanded public urban transport will be presented to the Congress. Shown here: an interchange in New York City.

Recent Measures in 5 Countries Above left: Among the recent Greek measures to restrain energy demand: a gasoline rationing plan to be completed within a month; an odd and even system of Sunday driving, an increase of 1 00 per cent import tax on private cars and an obligatory 2 a.m. closing for nightspots. Below left: "Save " : Danish conservation posters. The Danish programme to reduce oil use is based on a combination of price increases, persuasion and mandatory measures. The budget for information campaigns has recently been increased two and a half fold. Above: Germany's recently announced plan emphasized the pricing of energy and greater reliance on coal. The largest open pit mines in Europe between Cologne and Aachen shown here supply Germany with brown coal. Altogether coal of all types fuels almost 30 per cent of Germany's electricity generation.

countries can effectively ask why they should invest in greater Arabia could produce between 15-20 mbd and that Iran could production capacity when there are clear economic advantages to contribute an additional 6 mbd throughout this century. Our own keeping the market tight. "most likely" scenario saw OPEC production at around 38 mbd. Today, however, I believe that OPEC will find it difficult to produce Thirdly there have also been some significant changes in at levels much above 35 mbd. With world marginal demand for oil attitudes of oil producing countries towards the widely held growing by some 1 -2 mbd, OPEC maximum capacity could be Western belief that major oil producers can be relied upon to meet reached within as little as 3-5 years. New production in other the world's incremental energy demand requirements during the countries such as Mexico will help but will not solve the basic 1980s and 1990s. dilemma. Key producing countries are saying that the oil problem is the We have developed a simple arithmetical scenario based on West's concern. They will help, but they cannot carry the burden widely held and reasonable assumptions about underlying energy alone. These warnings of the OPEC producers must be taken ser¬ supply and demand factors which shows that unfilled world iously. They reflect the real situation before us. energy demand could be as much as 4 mbd in 1985, 10 mbd in From now on, the oil supply system will be operating at or near 1 990 and as much as 28 mbd in the year 2000, even if between its maximum capacity, resulting In a high degree of vulnerability to now and the year 2000: further supply disruptions, either accidental or political. The most economic growth is low (3.4 per cent per year) probable outcome of all these factors seems to be constant the energy-GDP ratio is 0.8 as compared to historical trends pressure on oil prices over the medium and longer term unless of 1 more determined action is taken. OPEC production increases to 38 mbd with Saudi Arabia contributing 1 5 mbd The Longer Term coal use and production are doubled nuclear energy increases 1 2 fold. There are also very significant long term implications of the recent events. Not more than one year ago, many analysts judged There cannot of course be a gap in the real world as supply and that OPEC as a whole could produce between 40-45 mbd during demand will always be equal, but this scenario does illustrate the the 1980s and 1990s. This was based on the belief that Saudi magnitude of the problem we face and indicates the possibility for

17 rapidly rising prices and lower economic growth if inadequate energy action is taken. What are the solutions? IMPROVING NIK Reducing economic growth from 3.4 to 2.4 per cent would save 20 mbd by the year 2000, but the economic sacrifices are great. The annual loss of GNP by the year 2000 would reach $2 trillion (in 1978 dollars). Clearly this is not a suitable solution for A POST HARR the world economy. by Klaus Stadie, Head of Tripling rather than doubling coal production would produce added supply of some 13 mbd by the year 2000. Such an in¬ OECD's Nuclear crease in coal usage however, requires a greatly expanded world coal trading system that by the year 2000 would reach some Central to the new energy crisis is the need for acceler 500-700 million tons. To support such a system, major coal producers such as the United States, Australia and South Africa dent at the Three Mile Island nuclear power plant near would have to step up their production to levels exceeding importance of nuclear safety. This article puts into domestic demand. Likewise, European and Japanese consumers and describes how the challenge of safely harnessing would have to install greater user infrastructure and be prepared cular reference to the OECD contribution. to import significant quantities.

Important new initiatives need to be considered to promote the more rational use of energy. Over the last five years we have witnessed a significant increase in energy efficiency in in¬ Nuclear safety as a discipline seeks to limit the risks associated dustrialised countries. This trend should be strongly endorsed and with the nuclear generation of electricity and is perhaps the continued as conservation may be our most important short and biggest challenge which man has faced since the start of the long-term energy solution. For example, reducing the energy/GNP technological age. ratio from 0.8 to 0.7 would save 10 mbd by the year 2000. Today, electricity is primarily generated in thermal power Achieving such savings requires government action specifically plants. These convert either the chemical energy locked up in tailored to given circumstances. fossil fuel, or the nuclear energy available from fissile elements

The short and medium term energy solution is severe as I see it such as uranium, into heat, and subsequently, by an intermediate and has never been so grave. If we have learned one thing since conversion system of boilers, turbines and generators, into 1974 it is that solutions to the energy problem are hard to come electrical current. In a nuclear power station the nuclear reactor by. They are costly and in some cases politically hard to swallow. simply substitutes the heat source of burning coal or oil. Yet We are already too late to avoid some economic repercussions nuclear power plants are special, as there is a very small but ex¬ from failure to act on energy policy. We know what to do, but it is isting possibility that they may fail with catastrophic, immediate and delayed effects on people even a considerable distance away. now time for energy words to be replaced by energy deeds and actions. In electricity generation only large hydro-power dams have similar potential for causing widespread loss of life; while the detrimental The short term situation demands the immediate following effects of conventional electricity generation result not from major actions: accidents but from the continuous emission of solid and gaseous First it is essential that countries continue to implement policies effluents with a fatality rate likely to be much higher than with to reduce consumption on world oil markets by 5 per cent as nuclear power. agreed. The risks inherent in exploiting nuclear power have been known Secondly, oil stocks should be rebuilt by the end of the year in from the outset, and safety considerations have always played a order to have adequate levels of heating oil for the winter season. major role in nuclear development. This year the 23 Member Action to rebuild stocks, however, should be carefully applied as countries of the OECD Nuclear Energy Agency will spend about any undue pressure on world markets at this time will result in $1 billion on regulating the utilisation of nuclear power and on higher prices. safety research. This expenditure which is additional to the Thirdly, perhaps the most immediate problem is to get on top of direct costs of developing, building and operating nuclear power the world price situation especially vis à vis the spot market. Ac¬ plants, and the associated fuel cycle facilities has risen more tion should not constrain healthy competition in this market, but than tenfold during the last decade and represents an effort to when higher and higher prices affect OPEC pricing decisions and develop and maintain safety on a scale unique in the history of general economic activity, then it is time for governments to be technology. concerned.

It is important to underscore that, while there is basis agree¬ What is the Nuclear Risk? ment among industrialised countries as to the basic energy out¬ look and the required action, national means for execution of In the fission process whereby energy is released from uranium, these objectives are different. Some countries such as Germany the uranium atom splits into two generally unequal pieces, form¬ and Switzerland prefer to depend to a great extent on market ing a wide range of chemical elements, called the fission products. forces; others such as Turkey have already begun rationing and Many of these fission products, prominent among which are such allocation; and most countries find themselves between these two elements as iodine and strontium, are highly radioactive, and extremes. This is a fact of life which we are going to have to these constitute the main risk of nuclear energy to man. If relea¬ recognise and live with. sed from a reactor they may contaminate the environment and can be particularly harmful to living organisms if ingested or The events in Iran are perhaps the most significant since the 1973/74 embargo. We must read the signals accurately now, as absorbed. The situation is further aggravated because man's sen¬ ses cannot detect radioactivity. time is slipping by and with it our hopes for a prosperous, or even marginally liveable future. Understandably, the attitude of the public to this novel source

18 human and mechanical fallibility over the 30-year life of the :lear safety reactor. What Do We Mean by Nuclear Safety? isburg view The progress of technology has always been associated with tragic accidents, but the lessons learned from these accidents have made a major contribution to man's knowledge, resulting in Nuclear Safety Division of improved safety. Energy Agency Ultimately, all accidents can be traced back to man's fallibility and the limits of his understanding. In nuclear safety, the implicit objective is to circumvent human fallibility to an unprecedented ated development of nuclear power. The recent acci- extent, because the damage potential inherent in nuclear energy Harrisburg in the United States has highlighted the is unprecedented. (For the same reason, progress in nuclear safety perspective the risks associated with nuclear power can obviously not be based on experience gained from accidents.) this novel form of energy is being met with parti- As a first step to attaining this object, stringent quality control is applied in designing, manufacturing and installing the equip¬ ment in nuclear power plants. Equally stringent requirements are applied in selecting and training nuclear power plant operators.

As a second step, the nuclear safety principle known as of energy has always been distorted by fear of the atomic bomb, "defence-in-depth " is adopted; this is in two parts. To begin with, which was its first application. Ir\ fact the kind of nuclear power several physical barriers are placed between the fission products plant in use today could not explode like an atomic bomb. The contained in the uranium fuel and the outside environment. bomb requires pieces of an almost pure form of a particular Travelling outwards from the fuel (see chart) these are: isotope of uranium, U235, to be brought together rapidly into a the fuel cladding surrounding the fuel which retains the fission compact and precise shape. A typical power reactor uses station¬ products and protects the fuel surface ary uranium ceramic containing only about 3 per cent of this the walls of the reactor coolant circuit, consisting of the reactor special isotope. The other 97 per cent of the uranium does not un¬ pressure vessel, the heat exchangers and connecting pipework dergo fission. Furthermore, while the atomic bomb is designed to the reactor containment, an air- and gas-tight building entirely distribute the fission products explosively, nuclear reactors are enclosing the reactor coolant circuit (this serves the dual function designed to retain them. of containing the great majority of possible reactor accidents and

Put simply, the ultimate aim of nuclear safety is to prevent the protecting the reactor against external hazards) release of fission products into the environment. A power reactor an exclusion area between the plant and the public. of the type now being put into service (generating some 1200 The other aspect of defence-in-depth consists of a number of MW of electricity) contains a quantity of fission products, the complex, automatic protective systems, intended to maintain radioactivity of which is several times greater than that released these physical barriers in abnormal conditions. A typical example by the Hiroshima bomb. The technological challenge lies in safely is the emergency core-cooling system, which injects cooling and reliably confining these fission products in the face of normal water into the reactor if the normal cooling system fails, so as to

The Loss of Fluid Test Facility (LOFT) at the Idaho Research Centre in the United States is a reduced-scale power reactor specifically built to undergo a range of loss-of-coolant accidents, to study the efficacity of emergency core-cooling systems and to assess the impact of such accidents in a reactor.

19 SECTIONAL VIEW OF of a common fault affecting them at the same time. This principle is known as diversity. A TYPICAL PRESSURIZED WATER REACTOR Finally, safety systems and components even redundant and diverse pairs that could be damaged or destroyed by the vio¬ lent failure of one of them, are physically separated.

All these multiple safety provisions are derived from an analysis of the question: "What if this or that should happen ? " Of course, one can never be absolutely sure of asking all the right questions, and in recent years analytical methods have been devised to minimise the possibility of pertinent questions being overlooked. These methods involve a systematic analysis of possible failure Steam sequences in the "defence-in-depth" system, even including f HHiiV turbine events that could be regarded as "incredible" (say, having a probability of occurring of one in a million or less). The evolution of these extremely unlikely accidents is studied and possible mea¬ sures for mitigating their consequences devised, even to the ex¬ Water tent in the extreme case of temporarily evacuating the local J to \ boiler population.

The OECD's Role

7 he first concerted venture of OECD's Nuclear Energy Agency in nuclear safety co-operation was to set up the Committee on Reactor Safety Technology (CREST) in 1 965. With the increasing concern about nuclear safety, and the expansion of national programmes in safety research, the OECD Member countries decided in 1973 to replace this body The three barriers: with a Committee on the Safety of Nuclear Installations (CSNI) 1 . Fuel cladding 0 to enhance international cooperation in nuclear safety research 2. Walls of reactor coolant circuit and to provide a forum for the free exchange of information 3. Reactor containment between licensing authorities in the different countries. prevent the fuel cladding from overheating. The abnormal con¬ The principal objectives of the CSNI programme are, through ditions could be initiated, for example, by the "conventional" international cooperation in key areas of safety research, first to failure of components such as pumps or valves, or operator error, improve knowledge and hence broaden the technical data base or a combination of both. Certain of these protective systems are available to regulatory authorities, and secondly to bring about also designed to mitigate the consequences of an accident that an international consensus on important safety issues. might result if these abnormal conditions were to become even Cooperation arranged through CSNI is organised at two worse. (An example here is a water spray in the containment levels: building to wash down fission products released in the form of gas m At the first level, general safety information such as a from the reactor in the event of an accident.) comprehensive index of national safety research projects In any case, in the event of abnormal conditions arising, the (3,000 pages annually), recent regulatory decisions, incidents nuclear process going on inside the reactor is immediately and in nuclear installations and so on, is collected and exchanged. A automatically shut down. However, the radioactive decay of the data bank is being developed in order to pool operating exper¬ fission products in the fuel continues after reactor shutdown. This ience gained from power reactors more systematically. decay shows up as the continuing generation of heat at an initial The second level of cooperation, comprising the larger part rate of a few per cent of the normal reactor output, then declining of the programme, goes into greater depth and is operational in quickly over a few days to a negligible level. It is therefore es¬ nature. It pertains primarily to safety research. Some aspects of sential to ensure continued cooling of the core to prevent it from this programme are illustrated below with a few examples. overheating, and a number of systems are provided for this As mentioned earlier, in the event of a reactor accident in¬ purpose. volving loss of coolant (the so-called LOCA or loss of coolant To make all these safety systems as effective and reliable as accident), emergency cooling is provided to prevent the reactor humanly possible, they are deployed in accordance with a number from overheating. It is clearly impossible to test the efficacity of of fundamental rules, some of them unique to nuclear power. these emergency cooling systems by reproducing such an acci¬ First, all safety systems are designed so that equipment or dent in a real commercial reactor. Therefore, to predict the components "fail safe". Second, all safety systems and com¬ course of events, a number of complex computer programmes ponents (indeed any systems that have safety relevance) are have been developed, supported by data from experiments backed up by duplicates to take over their function if they should simulating the accident. fail. This is known as redundancy. An important OECD contribution in this field has been to Next, many redundant systems and components are made of gauge the validity and relative accuracy of the computer codes different materials, and to different designs, often also employing developed in different Member countries. In these exercises, different principles so as to avoid total failure in the unlikely event I

20 In many respects the effort being expended on nuclear safety volves over 1,200 different research projects conducted by natio¬ far exceeds that on other technologies, notably commercial air nal laboratories, nuclear regulatory authorities, universities and transport, hitherto considered to be the most advanced. industry.

The recent incident at the Three Mile Island nuclear power The principal objective of nuclear safety research is to develop plant near Harrisburg provided an illustration of the "defence-in- nuclear safety provisions and to verify their proper functioning in depth " approach in action, showing how in the end the safety reactor conditions, to analyse the behaviour of reactors in systems confined the consequences to the plant itself, in spite of a abnormal conditions, up to and including accidents, to study the number of operating errors, and an unlikely combination of several consequences of particularly serious accidents and to devise equipment malfunctions. remedial measures, as well as to quantify the remaining risk in nuclear power generation. The function of safety research is also Research in Nuclear Safety to exploit the lessons learned from operating experience with reactors, so as further to refine knowledge about safety and also The complex technological and analytical safety arrangements to appraise novel materials and processes for safety provisions. described above result from a growing body of multidisciplinary research now referred to under the general heading of nuclear Licensing safety research. A further $200 million is spent on the supervision of the safety The OECD Member countries are currently spending approx¬ of nuclear installations; all OECD countries with nuclear power imately $800 million a year on nuclear safety research, which in programmes have devised their own nuclear regulatory schemes.

known as international standard problem exercises (ISPs), the safety analysis. Humans err, often in apparently random ways computer codes are compared with one another and with that seem to defy quantified evaluation. Yet humans are highly specific carefully controlled experiments in a special reactor or adaptable and can also save a situation from deteriorating other experimental facilities. These ISP exercises, which have beyond control. The question thus arises as to the optimum in¬ already increased confidence that emergency cooling will pre¬ terface between human operator and programmed machine. vent damage to the reactor, are also carried out in a number of Just as no group of humans can be expected to perform other fields, covering materials testing and measurement flawlessly, particularly under stress, neither can automatic techniques. systems be expected always to function perfectly, particularly Another important aspect of international cooperation con¬ as fallible humans design, build, test and maintain them. The cerns the pooling of knowledge in very specific advanced areas fundamental aspects of this important question are being ex¬ where understanding is still incomplete and where intimate amined by leading experts within OECD, a review given added working links are a condition for early progress. impetus as a result of the events in the reactor near Harrisburg.

Consideration is given, for example, to the extremely un¬ A further fruitful field of international study within the OECD likely sequence of events in which a loss of reactor coolant is is the analysis of differences in the approach to safety by followed by a failure of the emergency cooling in spite of the Member countries. A striking example of a Member country redundant and diverse design. In this event, the reactor will adopting novel safety requirements some years ago was that it heat up and, if it cannot be stopped, may ultimately melt down required all its nuclear installations to be protected against the fuel. If this happens, the reactor will contain two different, crashing military aircraft of a certain type. In view of the low hot liquids, the molten fuel and the coolant, which could probability of such an occurrence, previously only plants sited theoretically interact with each other violently, with explosive near commercial or military airports had been so assessed and, results. This phenomenon of a vapour explosion, although a if necessary, protected against such impacts. An OECD study of well-known occurrence which, in the steel industry has often the particular case concluded, on the basis of military aircraft claimed lives, is still not fully understood. It is highly unlikely crash statistics that this particular risk in the country in ques¬ that conditions needed for a vapour explosion could exist in a tion was about five times more severe than in neighbouring reactor, but researchers in nuclear safety have, nevertheless, countries, and that the protection requirements imposed thus been trying for some years to develop a coherent theory to un¬ seemed reasonable in the national context. derstand the basic mechanism. Since 1972 the OECD has Reviews of the state-of-the-art in particular fields are also promoted international co-operation on this subject using a undertaken. A typical example is a report on the safety of the think-tank approach involving leading scientists. nuclear fuel cycle. The initial thrust of nuclear safety was This think-tank approach has been successfully applied to directed primarily at reactors but attention is now being given many other areas. An example of this concerns the study of to out-of-pile facilities such as plants for fabricating new fuel rare catastrophic events which, although unlikely, are still and reprocessing fuel discharged from reactors after use. These possible: an earthquake, flood, or tornado of unusual intensity, facilities are now coming into service. Although few in number the simultaneous failure of several independent items of equip¬ and generally less hazardous than reactors, these plants ment, or mistakes made one after another by operating person¬ nevertheless need thorough review from the safety point of nel. view. The report in preparation by OECD examines the extent The problem is how such unlikely, yet potentially dangerous of current knowledge and identifies questions requiring further events, can be dealt with. Their very rarity makes standard research or analysis.

statistical methods useless, and data are obviously scarce. Finally a task which will rapidly gain in importance is the in¬ Hence the need for pooling available data on an international ter/inking of related safety research projects in the different basis. countries with a view to making their programmes com¬ A second relevant example is that of human error in the plementary, thereby avoiding wasteful duplication.

21 OECD REVIEW OF THE HARRISBURG ACCIDENT

a eading experts from the Nuclear Regulatory Commission Delegates then exchanged views on the preliminary J of the United States met in Paris with senior nuclear lessons for their respective national programmes they have ^m safety officials from the other Member governments of drawn individually from the accident and its aftermath. In the OECD Nuclear Energy Agency (NEA) on June 27th-28th particular, near-term measures and longer-term approaches to initiate an in-depth review of the lessons to be learnt from to improving the safety of light-water cooled reactors were the accident. This special meeting of the NEA Committee on presented by Member countries and discussed extensively. the Safety of Nuclear Installations (CSNI), heard a detailed These included: improvements in reactor operations and presentation by Dr. Harold R. Denton, Director of the Office of operators' training; plant design changes and methods of Nuclear Reactor Regulation of the US Nuclear Regulatory safety analysis particularly with regard to accidents involving Commission, who had been President Carter's personal core damage.

representative at Harrisburg during the evolution of the A clear consensus emerged on the need for further strong accident. visible international cooperation in nuclear safety research The presentations were concerned with the sequence of based on these approaches, and the Committee on the safety events and the conclusions which have emerged so far from of nuclear installations proposed that its programme of work the technical investigations initiated by the United States be reinforced accordingly. To this end specific proposals will uthorities. be developed for consideration as soon as possible.

consisting of a body of law and regulations governing the con¬ As far as licensing is concerned, it is well known that, in con¬ struction and operation of the installations. The schemes require trast to safety research, there is no practicable way to harmonise the design and building of installations according to well-defined national procedures and criteria for nuclear licensing since each norms, the training and licensing of operating staff, and provisions regulatory system is bound up with many specifically national for regular inspection of operating facilities. factors such as the country's legal system, political organisation, history and so on. However, the apparent impossibility of unifying regulatory systems in no way precludes exchanges of views bet¬ International Cooperation in Nuclear Safety ween regulatory authorities on these questions, as marked differences between the licensing procedures used by different While international cooperation in such organisations as countries can create undesirable obstacles to international trade Euratom, IAEA and OECD's Nuclear Energy Agency was initially and also undermine public acceptance of nuclear power. aimed at assisting the basic development of nuclear power, the

industrialisation of the technology, together with the growing Outlook for the Future concern for the environment, has more recently led to a shift in

emphasis towards nuclear safety. The accident at the Three Mile Island reactor has proved that a There is no doubt that it is in the interest of all the countries to nuclear accident anywhere is an accident everywhere. This can be compare their experience in nuclear power generation and to seen in the fact that nearly all countries with nuclear power share the task of reducing the risks involved. It was recognised programmes are now thoroughly reviewing their safety from the beginning that for psychological reasons a nuclear acci¬ programmes; in fact the impact of the accident on nuclear dent has the potential for extending its effects across national programmes elsewhere may be even more severe than in the Un¬ frontiers. ited States. The need for close cooperation is greater than ever in

The safety and regulatory aspects of nuclear energy are es¬ order to resolve quickly the outstanding safety questions in gen¬ pecially suited to international cooperation since they are the eral and the particular problems highlighted by the accident. In prerogative of public bodies. addition, it is essential to make sure that those who license reactors do in fact benefit from all the information generated by Furthermore, since safety research has rapidly expanded into a the extensive safety research being conducted by the OECD complex, multidisciplinary endeavour, it is increasingly difficult countries. To accomplish this, it will be necessary to further in¬ even for large countries to explore every avenue or for smaller tegrate the national programmes, a process which should not be countries to keep up with developments. This in itself is an in¬ too difficult as the basic objectives of safety research are the same centive for countries at least to communicate with one another. in all countries. The most powerful argument for cooperation is the prospect of reducing costs, and it is cooperation in nuclear safety research

* that offers the greatest potential for savings. There is little doubt * * that a relatively large number of national research projects are duplicated elsewhere, and it is a straight-forward matter for In spite of the excellent record of the nuclear energy industry, countries to exchange and compare their technical data and the safety of nuclear energy has become a major political issue in procedures. Results obtained in this way directly enrich the the Western world in recent years. The economic advantage of scientific and technical knowledge available to national regulatory nuclear power is such that it would be possible to spend even authorities. more on safety if this is needed. Of course, absolute safety is im¬ A pressing technical incentive for international cooperation in possible to achieve, and in the end an answer must be found to safety research arises from the growing requirement for many the question : "How safe is safe enough?" This is for the public safety experiments to resemble the real reactor more closely with and, in particular, its elected officials to decide. In the meantime, it regard to test conditions and scale, a requirement which results in is for those in the nuclear field to openly and honestly inform the greater complexity and far higher cost. non-experts about the merits and risks of nuclear energy.

22 RESOURCES FOR DEVELOPING COUNTRIES, 1 978

ohn Lewis, new Chairman of OECD's Development Assis¬ be making further decisions soon that better this prospect. Japan J tance Committee (DAC) presented the figures (see page 24) is our strongest gainer right now. It has moved up significantly to a press conference on June 25th. this year, is undertaking to double its aid in the space of three years, and may indeed do even better than that. The United ODA: Record and Prospects States, which is a very large part of the problem, seems rather clearly to have bottomed out. There are no prospects of a big in¬ " It would be a mistake this year to over-accent the negative. crease soon, but more declines seem unlikely and the US pipeline In the case of official development aid (ODA) per se the thing undisbursed commitments is rather long so the chances of which is at the heart of DAC's concern and responsibility the disbursements, which these figures measure, going up are rather story we have to tell about quality is excellent. DAC donors have a good. From this one can see as a best bet some slow gains ahead, very good record on the grant element of the aid they give. As a not mind boggling but nevertheless probably on the uphill side. group they have done rather well rather fast in implementing the As to the other donors, we are happy that the country with the general undertaking they made in Geneva at the Trade and lowest volume performance at the moment, Italy, has just had Development Board of UNCTAD a year ago in March on what is some important changes of policy new legislation that allows called retroactive terms adjustment softening up the conse¬ them for the first time to do some real planning of development quences of past loans for the poorest countries. In almost all assistance and I think this is a harbinger of improvement. cases our donors have forgiven principal and interest or made Plainly there are uncertainties in the period just ahead. The U.K. equivalent concessions on all or part of the debts owed them by and Canada both have new governments. The U.K. Government the least developed countries, and some donors have accorded has already cut back some £50 million on the budget for develop¬ similar treatment to a wider set of poor countries. It looks as if the ment assistance. The previous Canadian Government already had savings will be on the order of $1 00,000,000 a year for the ben¬ put a kind of hold signal on new expansion of programmes, and eficiaries. If you set this against the total debt service that the the new government, I think, has yet fully to declare itself in this least developed countries had to contend with about area. The more general uncertainty concerns the effects of the re¬ $500,000,000 it's a substantial relative gain for them. cent oil price increases. On the one hand, these may put a On the volume side, which necessarily preoccupies us, aid, squeeze on the ability of donors to respond to the Third World. On measured in its own right, rose 7 per cent in real terms between the other hand, the same price increases will accent the evident 1977 and 1978, and that's by no means trivial. As a percentage need for such responsiveness, since the non-oil-exporting poor of GNP, the increase in ODA was barely marginal. But there are countries are certainly going to be hit very hard." some reasons for encouragement. For one thing, of course, one must hail the performance of our four front-runners, Sweden, Norway, Netherlands and Denmark, each of which topped the 0.7 Forms and Types of Aid per cent of GNP target. They have continued to pull up the DAC average. But last year the three large economies Germany, Last year DAC Members decided to adopt a more forthcoming Japan and the United States, whose relative aid flows have been position on what is called local cost financing. That means giving below the DAC average also improved their showings. dollars or francs or marks and allowing the recipient to use the

Indeed, if one looks at the specific declines in country resource within the country rather than using it directly for im¬ performance that caused the DAC average to slide downhill ports. This is a more flexible kind of aid. It is welcomed by slowly during the Seventies, there are good grounds for thinking recipients, and the policy of donors now is to be receptive to re¬ that this slide finally has bottomed out (in 1977) and that the quests for it. Recipients are on notice that they can ask for such trend for the next several years should be moderately positive. If aid and have a good chance of getting it, considered case by case. you examine the ODA/GNP numbers for all members by four year The same kind of facilities were extended this spring to recur¬ periods, you will find that from 1970 to 1974 the two big rent cost financing. This means that, if a donor gives funds to negative influences on the DAC average were the declines for support the capital input into an activity in health or education or France and particularly for the United States (the size of the Un¬ agriculture but the recipient is so poor or so bound up in other ited States always magnifies its impact on the average). Similarly resource requirements that he doesn't have the wherewithal to the main causes of the overall slippage between 1 974 and 1 978 provide the necessary running costs for a while, the donor can were Germany and to a lesser extent, but quite significantly, say: 'If you ask me, and if it makes sense, I will as a matter of Japan. policy be ready to consider seriously providing those recurring

costs. There is reason to hope that all four of these main retarders of average volume performance in the Seventies now are headed Finally, as to ODA a few words about its composition. Our uphill. France has reaffirmed its intention to move toward the 0.7 donor countries have a lot of ideas about what they want to give per cent target. Germany is now on the way up and has virtually aid for. For example, a resolution was passed in the DAC in 1 977 reached the DAC average. It already has the budget decisions to that they wanted to concentrate on meeting the basic human hold its position relative to GNP for the next several years, and will needs of developing countries, and indeed there is a lot of aid,

23 relatively, flowing to agriculture, to education, to health to uses broadly in the basic needs area.

But if you look at the record, for all of this, donors are also very responsive to the priorities and interests of the recipients. This perhaps is as basic a guideline as any of them have, and they tend to agree on this approach. They are still giving quite a lot of aid in the areas of energy and industry, for example. (See Chart B). You will notice that they also give a fair amount of general develop¬ ment support or of "programme" or "non-project" aid. In general, donors are not keen to supply too much of this kind of aid because it's a little harder to keep track of the precise uses it's put to. And it's harder for them to inject their own ideas about the development process. But from the point of view of recipients it's a terribly important part. It's the most flexible part, and we are go¬ ing to be under increasing pressure in the next few months for that kind of aid because of the impact of the oil price increases, which are going to tighten up the balance of payments problems of many countries. Thus I believe we will be looking harder at the Abdlatif Al-Hamad, Director General of the Kuwait Fund and Acting issue of the balance between project and non-project as the year President of the Arab Fund (left) and John P. Lewis new chairman of wears on." OECD's Development Assistance Committee (right) at a recent informal joint meeting of DAC and Arab aid donors.

Non-Concessional Flows increase in non-aid flows that was triggered by the first round of

"To put ODA in the frame of total resource flows: at the start of oil price increases in 1973-74 and continued during the balance the 1970s when the world gathered in the United Nations of the Seventies, featured a sharp expansion of private bank lending and also very substantial absolute increases in non-bank Assembly and resolved to pursue the International Development export credits and portfolio investment and in official non- Strategy for the Second Development Decade, the end of which we are now nearing, there was a model projected that the total concessional lending. We in the DAC along with quite a lot of other people are very much concerned to get a better fix on flows from industrialised countries to developing countries should how this structure of non-concessional flows can be sustained. be on the order of 1 per cent of the donor's GNP and, within that There are several studies going on right now, partly as a result of 1 per cent, ODA should be on the order of 0.7 per cent. That Manila, and we hope that they can be brought together before the meant that the non-concessional flows were projected as being end of this year and before the International Development on the order of 0.3 per cent. What we actually have now near the end of the 1 970s is a kind of switch on that: the total is indeed 1 Strategy for the next decade has jelled. per cent. (It was not, by the way, 1 per cent back in 1970, it has The problems are several and complex. Many countries have gone up.) It may, on the basis of our latest numbers, even be a bit greatly increased their absolute debt burdens. In the aggregate, higher than 1 per cent, but the other two numbers essentially this debt is not alarming yet, but it has been rising, and in its have been reversed. ODA is only a little more than 0.3 and the present form it would appear to be approaching some kind of other flows the non-concessional flows, public and private ceiling. There are problems of maturities and terms. There is the have gone up to fill that gap at 0.7 per cent. problem of building more safety into the system both for borrowers and lenders. This may call for various kinds of umbrella The first thing to be said about this is that the ODA is too low. devices. The DAC has examined the possibilities for more co- On this all our members are agreed. Most of them have financing between the likes of the World Bank and commercial specifically adopted the 0.7 per cent target for themselves and still take it seriously; but also collectively all of them endorsed the banks. Attention must be given to such options as guarantees and interest rates subsidies as well as new and/or expanded direct view at Manila, at UNCTAD V, that the ODA figures do need to go medium and longer-term lending by multilateral institutions and up. But that's going to be a slow process and in the meanwhile bilaterally by governments. the second thing to be said about the switch in the 0.7 and 0.3 is that one does have to be concerned about what happens to the The short of it is that, especially this year, this matter of non- greatly expanded non-concessional flows. They have been concessional flows should not be treated as just an after-thought supporting development in most of the Third World and also at the back of the book. It is very, very critical and will be very facilitating Third World purchases of OECD exports. The radical much before us in the months immediately ahead."

Preliminary data on the volume of recorded by Denmark and Norway. Three of the major donors which are Official Development Assistance Denmark achieved the ODA target of 0.7 below the DAC average figure Ger¬ (ODA) from DAC countries in 1978 per cent of GNP for the first time, becom¬ many, Japan and the United States show that ODA disbursements, measured ing the fourth DAC Member to do so. The each increased their ODA both as a share in current US dollars, increased by $3.6 , other three countries which have achieved of GNP and in real terms. Austria, billion to $18.3 billion. As a share of this target are the Netherlands, Norway Belgium, Canada and the United Kingdom Members' GNP, they recovered slightly and Sweden. The Netherlands and also registered noteworthy increases, and from 0.31 per cent in 1977 to 0.32 per Sweden's ratios, although lower in 1978 cent in 1978. than in 1977, remained well above 0.7 per Finland and Switzerland gained while the cent, and the declines recorded do not other four showed a steady or declining Particularly outstanding increases were reflect any change in their policy. share of ODA in GNP.

24 A. ODA AS A SHARE OF GNP Terms

7. BY COUNTRY GROUPINGS The terms of ODA commitments, % of GNP 1.00 already highly concessional, softened

Denmark, Netherlands further, reflecting improvements in 0.90 Sweden, Norway average loan terms. In 1978, the average grant element in loans rose from the 61 .5 0.80 per cent figure prevalent in recent years to 63.3 per cent. There was a slight increase 0.70 in the role of grants. The collective Australia, Belgium, Canada, average exceeds the standards set by the 4L France, New Zealand, 0.60 recently strengthened DAC Terms United Kingdom Recommendation which specifies a

0.50 minimum grant element of 86 per cent and at least the DAC average in volume

terms. 0.40

In line with commitments made under

0.30 the UNCTAD resolution adopted on March 11th, 1978 at the Ministerial Session of Austria, Finland, 0.20 the Trade and Development Board, DAC Italy, Switzerland Governments have taken measures

0.10 retroactively to adjust the terms of their past bilateral ODA lending for a number of

0 least developed or other poorer countries. 1967/69 70 71 72 73 74 75 76 77 78 When completely implemented, the retroactive terms adjustment will result in Countries having reached the 0.7 per cent of GNP target for ODA. Other countries above DAC average. the conversion of a very substantial Large donors below DAC average. amount of ODA debt into grants, the Other countries below DAC average. rescheduling of debt service on ODA loans

2. BY INDIVIDUAL COUNTRY (Net disbursements)

% of GNP 1.00

0.90

0.80

o oo i r^ r~~ O) CTJ CD

0.70

0.60

0.50

0.40

0.30

0.20

0.10

.i*r r!& a ^ d? & ** SF vr & &&J? J? JF o* 'SS&SSs *P

25 Sweden is one of the two front runners among the donor countries. Norway is the other. Four views of Sewden's aid

programme : (left) : housing con¬ struction in India. (right): support for rural development and education in

Guinea. (below): a health centre for children

in Tanzania.

or equivalent measures. Present estimates countries concerned by some $100 mil¬ land, and the United Kingdom have con¬ are that, once fully effective, retroactive lion a year. verted, some as early as 1 978, or will con¬ terms adjustment measures will lower the Canada, Denmark, Finland, France, Ger¬ vert into grants all or most of their ODA debt service payments of the recipient many, the Netherlands, Sweden, Switzer- credits to the least developed countries. Finland, the Netherlands, Sweden, Switzerland and the United Kingdom have 1. TOTAL CONTRIBUTIONS BY VARIOUS DONOR SOURCES also converted some of their ODA credits

Net disbursements to poorer developing countries into grants. Austria, Japan, Belgium and Italy too have taken steps in this direction while the aid

$ billion Percentages programmes of Australia, Norway and New Zealand have traditionally been in the 1977 1978 1970 1977 1978 form of grants, and they accordingly have no significant claims outstanding on ODA ODA 22.70 (25.15) 47 35 33 account.

7. DAC(a) 16.18 19.81 40 25 26 2. OPEC 5.74 (4.70) 2 9 6 Total Flows 3. Centrally-planned economies 0.78 (0.64) 5 1 7

Non-concessional Flows 42.62 (51.38) 53 65 67 A preliminary estimate suggests that the total flow of financial resources from 7. DAC(b) 40.66 49.40 51 62 65

2. OPEC(c) 1.85 (1.85) 2 3 2 DAC Member countries in 1 978 may have 3. Centrally-planned economies 0.11 (0.13) risen by some $11 billion to about $61 billion, increasing slightly as a share of Total Resource Flows 65.32 (76.58) 100 100 100 GNP to 1.08 per cent.

(a) Including grants by private voluntary agencies. There was a decline in multilateral (b) Including offshore bank lending. portfolio investment from $2.6 billion to (c) Official sector only. $2.1 billion, and below-average rates of

26 increase of other official flows export ing countries from all sources OPEC, C. LONG-TERM CHANGES IN credits and multilateral portfolio in¬ the centrally planned economies and THE STRUCTURE OF vestment (from $3.3 billion to $4 billion) banks in offshore centres as well as DAC DEVELOPING COUNTRIES' and direct private investment, from sources was $30 billion. It increased to $8.8 to $10.2 billion. $51 billion in 1975, to $65 billion in TOTAL NET EXTERNAL FINANCIAL RECEIPTS Bilateral portfolio investment, mainly 1977, and to $77 billion in 1978. In consisting of net lending by banks resident 1 975, 1 977 and 1 978, it is estimated that 1960-1978 the current-balance deficits of non-oil in DAC countries (but not the lending of 7. AS PERCENT OF TOTAL developing countries amounted to $57 their offshore branches) rose to a record of % -100 $14.4 billion (almost $3 billion higher billion, $44 billion and some $52 billion than in 1977). Private export credits respectivelyd ). A number of developing countries were able to increase their reached some $10 billion, the highest -90 figure ever reported, and almost $2 billion reserves in 1978. However, reserves for Private bank lending higher than in 1 977. most non-oil developing countries still "" represent a lower coverage of imports Receipts than in the early 1970's.

-70 The structure of total resource receipts In 1973, the year before the oil crisis, has changed markedly over the last two Non-bank export the total net resource inflow into develop- credits decades. The dominant feature is the up¬ -60 and portfolio surge in private bank lending, from a investment negligible amount in the 1960's, to over B. MAIN COMPONENTS -50 30 per cent in 1978, outstripping ODA as OF ODA FROM Direct investment the largest single component of the .,;.,, '' DAC MEMBER COUNTRIES -40 resource receipts of developing countries. Official sector: 1.BY TYPE, 1978 (Net disbursements = The next most dynamic component was non-concessional

$ 18.3 billion = 100%) private export credit. The decline in the -30 share of the other categories of flow is to a large extent the statistical reflection of -20 these developments: although ODA in Official sector: ODA 1978 accounted for some 30 per cent of total flows compared with 60 per cent in -10 1960, it has increased considerably in absolute terms: even after allowing for the 1960 70 77 78 effect of price increases, the volume of

ODA provided annually is presently some 2. TOTAL AT 1978 PRICES

35 to 40 per cent higher than it was in the $ billion 76.6 -80 76.1 early 1960's.

As to sources, flows of financial resources from DAC countries represent -60 over 70 per cent of the developing 37.0 countries' total receipts and if the lending -40 of offshore affiliates of DAC banks is 2. BY PURPOSE, 1977 (Bilateral 22.7 commitments = $15 billion = 100%) added, almost 90 per cent. Some 13 per -20 cent of DAC outflows are channelled

through multilateral agencies; the rest is extended bilaterally. 1960 1970 1977 1978 International bank lending is estimated to have reached $24 billion net in 1 978, a 1977. The decline was largely due to a new record, compared to $ 1 8 billion in reduction in disbursements to the Gulf 1 977(2). Somewhat less than half of this Organisation for the Development of lending appears to have been extended via Egypt (GODE). The major donors were offshore centres in developing countries Saudi Arabia, Kuwait and the United Arab and Luxembourg. Over one third of total Emirates; Iran's importance as an aid bank lending in 1978 was taken up by donor declined considerably. OPEC countries. Other major borrowers included Brazil, Mexico, Argentina, Chile, Yugoslavia and Portugal. (1) The resource flow totals include movements of capital to OPEC countries. Var¬ The flow of official sector resources ious further adjustments, some very sub¬ from OPEC countries in 1978 is provisio¬ (a) Consisting largely of technical co¬ stantial, are required to reconcile balance of nally estimated to have fallen by about $1 payments and resource flow figures. operation. billion below the 1 977 level of $7.6 billion (2) Preliminary estimate from data prepared (b) Including finance for current by the Bank for International Settlements, imports. due to smaller concessional flows. This (roughly) adjusted to exclude changes in short- lower level amounted to 1.5 per cent of (c) 13% if agroindustry is classified term claims of resident and non-resident with industry. the GNP, compared with 2 per cent in banks.

27 OECD TRADE WITH THE NEWLY INDUSTRIALISING COUNTRIES (NICs)

by Stephen Marris, Economic Advisor to OECD's Secretary General

The OECD has just completed a study of trade in manufac¬ beneficial development for OECD countries as well as for the NICs tures between the OECD countries and a group of nations and that, if the right policies are followed on both sides, there is no which are described as " newly industrialising countries" (1). reason why this cannot and should not continue to be so. It was undertaken because these dynamic new suppliers have been increasingly competitive in OECD markets, and the protectionist reaction provoked may have an impact on the whole of the world trading system. We wanted to take a close look at the costs and benefits of this trade.

The main results of the study are that its growth has clearly been a

(1) The Impact of the Newly Industrialising Countries on Production and Trade in Manufactures, OECD, Paris 1979.

A. SHARE OF SELECTED AREAS IN TOTAL OECD IMPORTS OF MANUFACTURES

Percentage

Total NICs

Hong- 4 Kong, Korea, , Singapore and Taiwan

Southern European ! NICs(l) 1 Brazil and Mexico 0 1963 73 74 75 76 77

1. Greece, Portugal, Spain, and Yugoslavia.

28 What is a NIC? Moreover, in absolute terms NIC exports to OECD were only $33 billion in 1977. To get a proper perspective on the progress of the There is no hard and fast definition of a NIC. The newly NICs, one should look at this figure against the overall market for industrialising countries chosen by OECD for its study are very manufactured goods in the advanced industrial countries which was heterogeneous in terms of resource endowments and development about $2,400 billion and against their GNP which was $4,700 billion. patterns, but all have enjoyed very rapid outward-looking growth and So it's only a tiny fraction of these economic magnitudes. Finally, it have propelled themselves into the middle income group of countries. must be remembered that the vast bulk of imports of manufactures Ten countries were included two in Latin America, Brazil and into the advanced industrial countries more than 85 per cent Mexico: four in the Far East, Korea, Taiwan, Singapore and Hong still come from these countries themselves. Kong; three within the OECD itself, Greece, Portugal and Spain as Moreover, the phenomenon is hardly unique. " Newly" industrialis¬ well as Yugoslavia, which has a special status within the OECD; there ing countries have been coming to the fore ever since the United are continued shifts in the composition of the group and differences of Kingdom did so over 100 years ago. In the post-war period there have opinion over exactly which countries belong to it at any given time. been newly industrialising countries both in Europe and Japan. The These countries have increased their penetration of OECD markets process is a continuous one. In the next few years, other countries are to a substantial degree. The share of the ten NICs in OECD imports likely to become NICs. of manufactured goods is now more than 8 per cent of the total as The NICs have made progress in all product groups except compared with only 27i per cent in 1963. (See chart A.) chemicals in electrical machinery, textiles and leather goods and This is rapid growth but no more rapid than the changes which other finished consumer manufactures in particular. But this progress have taken place among the OECD countries themselves (see chart B): on a broad front obscures what is really happening: the export during the 1963-77 period, Italy and Japan together gained about the strategy of the NICs is to concentrate on very specific products and same number of percentage points as the NICs did and, in the reverse markets. In electrical machinery, for example, they supplied roughly direction, the United States, United Kingdom and Germany together 12 per cent of OECD imports in 1974, but the range was from less lost 1 1 percentage points. Nor has the rate of growth shown a ten than one per cent (for medical and radiological apparatus) to 30 per dency to accelerate. cent for electronic components and radio receivers. Such extreme

Left : a steel mill in Spain

Above: the production of industrial textiles in South Korea on Japanese textile machines

Above right: manufacture of buttons in Hong Kong

Right: a fertilizer plant in Mexico

29 STRUCTURAL CHARACTERISTICS OF THE NICs (1976)

Area Inhabi Distribution Merchandise Foreign Share of Popu (thou tants GNP per of GDP (%) trade (bill. US$) trade manufac-

. lation sands per sq. capita turnover tures in

(million) sq. kilo kilo (USS) Agri Ex Im as% exports Industry Services meters) meter culture ports ports ofGNP (1975)

Korea 36.0 99 363 670 27 34 39 7.7 8.8 68 82

Taiwan 16.3 36 452 1,070 12 45 43 8.1 1.6 90 85

Mexico 62.0 1,973 31 1,090 10 35 55 3.3(a) 6.0 (a) 14 (a) 52 (a)

Brazil 110.0 8,512 12 1,140 8 39 53 10.1 13.6 19 27

Yugoslavia 21.5 256 83 1,680 15 43 42 4.9 7.4 34 72 Portugal 9.7 92 105 1,690 18 43 39 1.8 4.3 37 71 Hong Kong 4.5 1 4,500 2,110 2 34 64 8.5(b) 8.9(c) 183 (b.c) 97 (b) Greece 9.1 132 68 2,590 18 31 51 2.5 6.0 36 48 Singapore 2.3 1 2,300 2,700 2 35 63 6.6(b) 9. 1 (c) 252 (b.c) 43 (b) Spain 35.7 505 70 2,920 9 39 52 8.7 17.5 25 70

a) Excluding trade of the free trade border zone. b) Including re-exports. c) Including imports for re-exports.

Source : World Development Indicators, World Bank.

differences are of course one of the reasons why the NICs have has already been voiced about the possible link between rising imports attracted so much attention in OECD countries. of manufactures from the NICs and recent losses in manufacturing The interesting thing about the NICs is that they have gone beyond employment. It has been argued that, since OECD industries which the stage of competing solely on the basis of low wages and labour- compete with imports are more labour-intensive than the exporting in¬ intensive products such as textiles, footwear and clothing. Some say dustries, more jobs will be lost from increased imports than will be that they have" short-circuited" the traditional product cycle; in any gained through increased exports. The analysis is quite difficult, but case they are now exporting such technologically advanced and most studies would suggest that this is correct: a balanced increase in capital-intensive products as steel, ships and motor vehicles while the trade between OECD countries and the NICs creates something like 5 less developed countries are moving into the labour-intensive niche. to 25 per cent fewer jobs than are displaced by imports. Thus, for ex¬ ample, with an increase of $ 100 million in both imports and exports, A Positive Balance of Trade some 4,000 jobs would be " lost" on the import side while only something like 3,000 to 3,800 jobs would be" created" on the export A key point, which is nothing like well enough known, is that side. This is a very small amount of unemployment compared to that OECD exports of manufactures to the NICs have risen much more caused by normal change in the economies of OECD countries than our imports from them, and this surplus has been increasing. through technical progress and labour saving investment, change in While OECD imports of manufactures from the NICs rose (on an demand, etc. f.o.b. basis) from about $ 1 billion in 1963 to a little over$30 billion in Moreover it is a positive factor in the economy since it improves the 1977, our exports to them rose from$5 billion to$48 billion. In other welfare of consumers in OECD countries. They are able to buy the words, our trade surplus with these countries rose from around $4 bil¬ same quantity of goods as before while employing fewer people. And lion to around $ 18 billion. The OECD started the period with a sur¬ the people thus freed can be employed producing something else plus vis-à-vis the NIC s, and this surplus has continued to grow. There which is more capital-intensive and where labour is more productive. has been a two-way flow of trade in virtually every kind of product, even the much discussed textiles and clothing. To take just two ex¬ While the net employment effect is quite small, there can be sub¬ amples, Germany has done very well with velvet; moreover OECD stantial losses of employment in some sensitive industries, certain countries have been selling NICs the textile machinery with which to regions and groups of workers (e.g. women and unskilled), while the make the textiles. (See charts C andD). gains from expanding exports are much more diffuse and less visible. Thus in times of slow or negative overall employment growth, gross This is the historical record. And we need to be quite clear what it employment losses can create serious frictional adjustment problems. means. It means that, contrary to what one so often hears, trade with But most calculations show that, in the longer run, the cost of ad¬ this particular group of countries has created, not destroyed, employ¬ justment tends to be smaller than the benefits of trade liberalisation. ment in our countries. The Secretariat estimates that OECD exports of manufactures to the NIC s have created around Vi million more jobs In the very short run, putting up barriers at the frontier to imports than have been lost as a result of imports from them (the estimates from the developing countries may save a few jobs, but in the longer range from 200,000 to 900,000 depending on the method used). run will make it more difficult to control inflation and will oblige governments to adopt restrictive demand management policies that The Future of Employment will actually increase unemployment.

Between 1974 and 1977, however, the trade surplus has declined Prescriptions for OECD Countries somewhat, and for the future we may see balanced growth in trade with the NICs imports and exports rising by roughly the same A final aspect of the employment question is that many amount. What is the employment outlook in such a case? Concern employment problems can more accurately be attributed to difficulties

30 B. CHANGING SHARES IN TOTAL The bulk of manufactured exports to NICs is likely, however, to OECD IMPORTS OF MANUFACTURES, continue to consist of investment goods, an area where rapid 1963 TO 1977 technological progress tends to produce continually improved, if not Percentage points entirely new, products. Growth of the NICs will lead to expansion of domestic demand and a desire to adopt modern technologies, and this will generate more demand for sophisticated capital goods. Even with GAINS 4 growing domestic production of some items of machinery and equip¬ u t) 6- z ment, demand for capital goods supplied by advanced industrial countries will continue to rise, though with a changing composition. c Demand for managerial and entrepreneurial skills and organisation ta¬ lent in production, marketing and finance can also be expected to grow rapidly.

Export prospects for the advanced countries are also promising in the products wanted by an emerging more affluent middle class in the w developing countries, exposed to the demonstration effect of the o 1 w advanced industrial societies: in particular, consumer durables, quality soft goods, and higher quality food (or inputs needed to produce such Italy Istern food). In the area of fashion, leisure goods, tourism and, more gen¬ Canada 1 erally, culture, there is a strong likelihood that many of the new trends

1> started in the advanced industrial countries will give rise to increasing (X France DevelopingC Nthanother export flows in goods and services. 0 More generally new technologies are being developed in the advanced industrial countries in response to new demands and \

1 TRADE BALANCES OF OECD COUNTRIES .22 WITH NICs IN MANUFACTURES c 3 1 billion % fob-fob at current prices U

c Q CS Japan _ r > S= _, ^ France

4) o Germany Gern Italy ingdor 55 S United Kingdom -« TOTAL OECD Oth OECD NICs -20 Other OECD countries OECD £ Ktited United Canada United States D 18

LOSSES mm J

16 (1) South Africa, non-OPEC Middle East, and unspecified.

OECD 14 among OECD countries themselves than to the NICs. The concentra¬ tion of OECD's export surplus with the NICs on certain Member 12 countries and of deficits on certain others (see chart C) is very much in line with what has happened to the overall trade balance of these 10 OECD countries: one might say that the difficulties which appear to be due to competition from developing countries can more accurately be attributed to the failure of OECD countries to reduce the com¬ petitive disparities between themselves. And the way to reduce these disparities is not to cut out imports from developing countries but to pursue and improve the coordination of demand management and ex¬ change rate policies among our own countries. OECD This is one of two major recommendations made to Member countries in OECD's report. The other is that they undertake what we call positive adjustment policies (see page 34) moving up the ladder to more capital-, skill- and technology-intensive goods and services where labour is used more productively. 1963 1973

Because the advanced countries are at the frontier of changing tastes and technological progress, their comparative advantage will generally lie in new products, processes and technologies and often in 1977 services and know-how only partly embodied in traded goods. Almost by definition, therefore, these are hard to describe because they are in¬ tangible or do not yet exist.

31 D. OECD TRADE IN MANUFACTURES WITH THIRD COUNTRIES AND NIC 'S

billion dollars,fob-fob

180 1 1 I i JU V^ith third c ountries With NICs 170 ' Exports (fob) Expon s (fc>b) i 160

150

40 140

130

120

110 30

100

90

80

20 70

60 Imports (fol >)

y 50 ,.'' *» 40 . *-- /' ^" 10 - .-" .»-" 30 ,.y --' .' *"' Im jorts * , (fo >) S * 20 .«"* s ,-.*» Export surplus t^r Ex Dort lus surp , 10 L*" *Jêêê W"""- " .-»-* r-"

0 L-H- 0 1963 64 65 66 67 68 69 70 71 72 73 74 75 76 77 1963 64 65 66 67 68 69 70 71 72 73 74 75 76 77

As the NICs develop, there must be a shift awayfrom export oriented growth to more broadly based growth with increasing emphasis on social infrastructure and domestic consumption.

32 problems which, in due course, will be confronting the NICs: pollution country. The classic example of this is of course J apan which has had control, urban infrastructure, energy saving, transport, com¬ the greatest difficulty in switching smoothly from a highly dynamic munications, health and educational systems, security etc. The vast export-oriented growth to a more balanced growth process. opportunities offered for the export of" know-how", management and It is worrying in this context that some of the NICs are showing delivery systems for these and other private or public goods and signs of moving towards current account surplus. For a developing services, while less tangible than the traditional exports of country to be so successful that it moves into surplus at a relatively manufactures, need be no less employment-creating, and will be more early stage in its economic development can create problems, both for profitable. the country concerned and for its trading partners. It is obviously against the self-interest of the country concerned, if it is a poor The View from the NIC s country, to start exporting its own domestic savings which it needs for development. In the long run this is liable to lead to social and political Economic history shows us that the newly industrialising countries difficulties. It is also likely to generate powerful inflationary forces or can be integrated into the economic system with mutual benefits to an unduly sharp appreciation of the exchange rate. Secondly, as is both sides. But it also shows that there can be problems. Once a only too evident, it can create very strong protectionist forces in the country is riding the tiger of export-led growth, it can be difficult to get rest of the world which will feed back on the original country. off. Some countries fall off as the tide of aspirations of their people So if the NICs are to integrate their countries into the world rises; they run into inflationary problems, and the whole dynamic of economy, two kinds of mechanisms, one internal and one external, high investment, export-oriented growth breaks down. must work properly. As to the internal adjustment process, the com¬ On the other hand, a country may find itself hanging on to the tiger petitive advantage of these countries comes from the fact that they too long and unable to get off. And it then becomes a chronic surplus have low real wages. The critics often say the problem is that, in

E. SHARE OF NIC s AND OTHER LDC s IN TOTAL OECD IMPORTS BY BROAD COMMODITY GROUPS, 1963 AND 1977

percentages

Share of OECD Imports Share of OECD Imports from NICs from other LDCs 1963

L Paper 1977

Chemicals

Machinery other than electric

[1 Transport equipment

Iron and Steel

JZ Non-metallic mineral manufactures

II Manufactures of metal

Rubber manufactures

Textiles

Miscellaneous finished manufactures

II Electrical Machinery

Wood and Cork Manufactures

Leather, footwear, travel goods

Clothing

20 15 10 10 20 25 30 35 40

33 today's world, multinational enterprises can take the most modern kinds of technology and put it into countries with low real wages and are then unbeatable. This is not good economics since it ignores the POSITIVE AI fact that low real wages in developing countries are an inevitable reflection of correspondingly low productivity. A poor country is poor precisely because of its low productivity. The big changes in relative prices, cost structures When modern technology is introduced, labour productivity on the and patterns of demand since the early 1970s have factory floor rises sharply, but for some time this is offset by high made the need for adjustment in the structure of the costs of everything else management, maintenance, transportation OECD economies more urgent. At the same time, and marketing. As these countries move into the phase of rapid in¬ because of slow growth, high unemployment and a rise dustrialisation, productivity and efficiency surge ahead but so do real wages in industry, in response to rising aspirations of the labour in structural rigidities, such adjustment has become force and the ability of employers to pay. In countries with a large ex¬ more difficult. cess labour supply, real wages may lag behind productivity, but this A year ago OECD 's Council at Ministerial level will generate very high profits, which will attract the attention of adopted some Orientations for a shift to more positive governments and wage-earners alike, leading over time to social and political pressures, higher wages or higher taxation. adjustment policies (see box). Since then, all the rele¬ vant OECD Committees have examined the problem; With luck these pressures will grow in a reasonably smooth way, at the factory floor. If not, they will build up progressively and lead to in addition, the government representatives who prepa¬ social and political tensions. It is a basic law of economic development red the Orientations have met twice to examine the that there is an extraordinarily strong parallelism between rising general economic issues involved in shifting to such productivity and rising wages. policies. Following the termination of this phase of the Then there is the external adjustment process. For the industrialis¬ work, the results of which have just been published(l), ing countries to be integrated properly into the world economy, not the Organisation has created a special group of senior only must there be a parallel movement in wages and productivity, but officials as part of a new two-year programme on posi¬ this must be translated into a gradually appreciating real exchange rate. As they become more efficient, these countries will no longer tive adjustment policies (see page 7). The following need such a highly competitive exchange rate and, if they continue to article, based on this report, reviews some of the tough have such an exchange rate, they will rapidly run into problems of ex¬ operational and political issues involved in the light ternal surplus. One way or the other they must appreciate their of the work done in the Organisation over the last currencies. This can be done in two ways: by appreciating the nominal 18 months. exchange rate, or with a fixed exchange rate through a high rate of inflation. Inflation is, of course, one way of reducing the country's competitive advantage, but quite clearly the least desirable one from every point of view.

General Questions Thus, for OECD countries, the right policy is not to resist the in¬ tegration of the NICs into the world economy but to pursue positive What is Positive Adjustment? adjustment. Of course, positive adjustment policies need to be coupled Positive adjustment involves moving resources: with active social policies to cushion the burdens of adjustment and from the production of goods and services for which demand is see to it that they are shared throughout the community. declining to production of goods and services for which demand is For this process to be beneficial, however, the search must be con¬ increasing tinued for a package of policies which will get OECD countries back from less to more efficient production onto a non-inflationary growth path. It is also clear that, if the burden away from production in which other countries are gaining a of adjustment is to be properly shared internationally, further efforts comparative advantage are necessary to coordinate policies between OECD countries so as to Policies can be regarded as positive: remove chronic disparities in competitive positions between them. if they facilitate such shifts On the side of the newly industrialising countries, what is needed is or, where they are directed to achieving other governmental to see to it, first, that rising real productivity is translated into rising objectives (such as improving the social and physical environment, the real wages; secondly, that there is a progressive external adjustment distribution of income, or the fair sharing of the burdens of adjust¬ that their trade is liberalised and a rising real exchange rate ment) do so in ways which minimise adverse effects on economic permitted or encouraged. Finally, they must see to it that, as they efficiency. develop, there is a progressive shift away from export-oriented growth to more broadly based growth with increasing emphasis on social in¬ Adjustment, Growth and Inflation frastructure and domestic consumption. The need for a shift away from defensive policies to assist weak As to the benefits: for the advanced industrial countries, these take sectors and firms increases steadily with the passage of time, even the form of cheaper goods for consumers, a spur to increased under conditions of slow growth. But much current thinking about productivity and reduced inflation at home, and new and prosperous this matter is dominated by the" fallacy of misplaced concreteness": export markets abroad. For the newly industrialising countries they attention is focussed on the job saved in the assisted sector rather than include higher investment, productivity and real incomes, and the for¬ on the job not created in the sector that is not assisted because it has eign currency needed to help finance accelerated economic develop¬ to bear the cost of the higher prices and taxes needed to pay for the ment. assistance.

34 )JUSTMENT POLICIES (PAPs)

There are futher ways in which the pursuit of defensive policies will, decisions have already been taken, reactions from their side are bound by inhibiting investment, adversely affect employment. Thus increased to be strongly negative...". And OECD's Manpower and Social profits in an industry which depends on government assistance for its Affairs Committee: "... positive adjustment policies ... should be survival are much less likely to stimulate productive investment than developed to the fullest possible extent in cooperation with the social increased profits resulting from rising demand and reflecting long-run partners, and should take account of the human and social conse¬ competitive strength. Assistance to declining activities also tends to quences of the structural changes in question". encourage inefficiency both at managerial and shop-floor levels. Third, acceptance of adjustment presupposes the existence of effec¬

There is thus a vicious circle whereby slow growth generates beha¬ tive policies to deal with market imperfections and externalities in viour and policies which impair productivity and accentuate inflation: particular, strong competition policies and strong regional policies. this prompts governments to adopt more cautious demand manage¬ Phasing Out Defensive Measures ment policies and hence leads, directly and indirectly, to even slower growth. Defensive measures to assist weak sectors and companies create strong vested interests in their continuation. Thus" controlled adjust¬ There is, naturally, concern about phasing out defensive policies ment" very often turns out to be insufficient adjustment. under conditions of high unemployment. But a major conclusion of the report is that, compared with general measures to encourage There is a natural tendency to want to" restore the competitivity" investment and employment and increase aggregate demand, mea¬ of a declining industry through mergers and large-scale new invest¬ sures which effectively divert profits, capital and managerial skill from ments. While this may be possible up to a point, if underlying compa¬ the more to the less dynamic sectors of the economy will, over time, rative advantage has shifted to producers in other countries, the out¬ lead to less investment, lower productivity and more inflation come is likely to be continuing excess capacity on a world-wide basis, hence, in the end to less employment, not more. so that the profitability of the new investments can only be maintained by continuing protection in one form or another. In other words, with A shift to more positive adjustment policies will therefore contri¬ controlled adjustment, there is a considerable likelihood that, while it bute to the revival of non-inflationary growth. But there are three may go far enough to eliminate companies actually losing money, it important requirements for success: will not go far enough to create the market opportunities for dynamic First, since adjustment is more difficult and painful under condi¬ companies based on genuine competitive strength at home and tions of low growth and rapid inflation, governments must seek to abroad. achieve an overall economic climate conducive to growth and adjust¬ In quite a number of cases, there is a clear risk that industries and ment. enterprises which have received selective support to tide them over the recession and to allow for the modernisation necessary to become in¬ Second, acceptance of adjustment presupposes the existence of ternationally competitive, may end up as a permanent drain upon the effective arrangements for sharing the burden on those directly affec¬ ted: redundancy payments, unemployment insurance, training pro¬ public purse. There is scope for improvement in the arrangements for grammes, assistance for moving, etc. The need for adjustment will ensuring that temporary assistance is phased out. Increased also be better understood and more readily accepted if there are effec¬ awareness of the difficulties which accompany the withdrawal of tive arrangements for consultation between the social partners, both selective support may encourage governments to make more adequate bipartite and tripartite, from the earliest possible moment. This is one provisions for ultimate withdrawal of the assistance when initiating the of the main messages running through the contribution to the compen¬ policy. "~

dium by OECD's Trade Union Advisory Committee (TUAC) which (1) The Case for Positive Adjustment Policies, A Compendium of OECD notes that: " When workers are involved only at a late stage, when all Documents, 1978/79, OECD, Paris, June 1979.

ORIENTATIONS ON POSITIVE ADJUSTMENT POLICIES

As regards industrial policy, the key points are that: quality, health care, urban infrastructure etc. to ensure adequate incentives for long-term R&D Assistance to specific industries and companies: to make sure that small and medium sized enterprises have should be strictly temporary adequate access to venture capital, R&D and management should be integrally linked to the implementation ofplans to services. phase out obsolete capacity and re-establish financially viable As regards labour market policy, the key point is that measures enterprises the cost should be made as evident as possible to decision to subsidise employment should not have the effect of locking makers and the public at large labour into declining sectors. private risk capital should be involved where possible As regards agricultural policies, the key point is to ensure that arguments based on considerations of national security they are designed to achieve their social, economic and political should not be misused to justify measures for protection and objectives at minimum cost to the consumer and taxpayer.

support. And in the field of regional policy, the key point is to put the m Government action should supplement marketforces : emphasis on general measures to develop viable industries, where they do not fully anticipatefuture economic and social through providing infrastructure andfiscal incentives, rather than 1 needs: e.g. R &D on energy, improvements in environmental simply bailing out enterprises in financial difficulty.

35 Transparency Adjustment, Trade and Investment

There are wide differences between countries as to how far The case for positive adjustment policies rests essentially on the budgetary procedures are designed to bring together and analyse the contribution they can make to increasing domestic welfare through in¬ cost to the budget (in terms of both expenditure and foregone tax creased efficiency and less inflation. It is equally true, however, that revenue) of all types of government assistance to the economy. Only a defensive domestic policies can harm other countries through the im¬ few countries have introduced regular procedures for estimating and pact of governmental assistance on international trade and investment publicising the indirect cost to the consumer of higher prices resulting flows and can set off a cumulative process of imitation and retaliation. from protectionism and other forms of government intervention. In¬ As a general principle, it can be argued that countries will not deed, one of the most salient features of the discussions in the various normally have legitimate grounds for complaint against policies pur¬ bodies of OECD has been the inadequacy of information on existing sued by other countries which do not discriminate between domestic intervention, let alone cost-benefit calculations, even on some impor¬ and foreign producers and are "welfare-efficient", (see below). tant policy measures. Thus, there is considerable scope for improving the" transparency" of policies in many countries, both nationally and internationally. This is one of the questions which the new special Competitionfrom Developing Countries group of senior officials will investigate. Although competition from the developing countries is a relatively

36 Upper left: assistance to specific industries or companies should be strictly tem¬ porary and linked to plans for phasing out obsolete capacity.

Lower left: regional problems can be eased by active manpower policies and re-training programmes.

To right : the problem of maintaining minimum income levels in agriculturefor those adversely affected by structural change should be handled by general arrangements for income maintenance rather than through agricultural price policy.

Government action should supplement market forces to make sure that small and medium-sized firms have adequate access to venture capital, R&D and management services. Below: a British plant which produces magnifying lenses for export.

minor factor among those creating a need for adjustment (page 28 ), trade aspects of such policies should, therefore, give appropriate atten¬ exports to OECD countries are extremely important to them, and are tion to the interests of the developing countries. often particularly vulnerable to defensive measures taken by the in¬ dustrialised countries. Market Forces and Government Intervention

Moreover, the impact of adjustment measures can vary Emphasis on the need for positive adjustment has been interpreted significantly between the industrialised and the developing countries, due to differences in the scale and structure of their economies: in some quarters as a call for blind reliance on market forces under all

smaller and less diversified economies are often more vulnerable to circumstances. This is a misconception. The Orientations explicitly recognise that governments have many other objectives in addition to defensive measures taken by other countries than the more advanced promoting economic efficiency, that markets are subject to im¬ economies. Many developing countries advocate a more direct and perfections and monopoly power, and that there are, under certain positive role for governments in planning and controlling industrial in¬ conditions, good grounds for intervention to regulate, moderate or vestment and production than do most OECD countries. They are supplement market mechanisms. making structural change and adjustment a central focus of the North/South dialogue, and are proposing a greater role for internatio¬ There is no case for dismantling existing social programmes. But nal surveillance and negotiations in this field. Further work on the there are always questions as to whether there are ways of achieving

37 social and other objectives which are less costly in terms of economic R&D related to non-market goods and services, rather than com¬ efficiency measures which, in the terminology used in this report mercial projects. are more" welfare-efficient". And there will also be questions as to As to commercially viable innovation, experience suggests no gen¬ whether, in certain cases, the costs are not simply too high in relation eral superiority of governments in the selection of the most promising to the benefits, given the circumstances prevailing in the country R&D projects. In many smaller countries, however, it is felt that concerned. government schemes to assist in the development of specific products and processes may have a role to play because of the absence of any Employment and Manpower Policies spin-off from large defence and space R&D programmes and the ten¬ Even with a relatively large overall slack in labour markets, there is dency of multinationals to concentrate their R&D work in their main a continuing need to improve the geographical and professional offices. mobility as well as the quality of the supply of labour through active labour market policies which reduce market imperfections and exter¬ Assistance to Small and Medium-sized Enterprises nalise certain costs carried by employers and employees. This The birth and growth of smaller sized firms plays a greater role in approach can also be useful where the rigidities result from social furthering economic growth and preserving competition than their legislation or collective bargaining inspired by equity and welfare con¬ share in industrial output would lead one to expect. The best way to siderations. In some instances, however, adaptation of the relevant help smaller enterprises is normally through action to encourage the rules and regulations and/ or financing provisions may also need to be formation of new companies, to alleviate the specific market im¬ considered. In some cases, modifications in working conditions and perfections in access to external finance, R&D and management tax systems could help to increase employment. services which can impede their creation and handicap their activities rather than general administrative, or fiscal arrangements dis¬ Picking the Winners criminating in favour of small and medium-sized companies as such. Opinions differ and so does country practice as to the need AgriculturalPolicies for government to identify potential specific areas of growth and in¬ tervene in directing resources to these areas. The adjustment problems of agriculture are not new, but they have At one of the spectrum, it is felt that the allocative role of the been exacerbated since 1973 by slower growth and fewer employment market needs to be supplemented only in the case of some long-term, opportunities outside agriculture. While recognising the importance of high-risk ventures usually involving the provision of non-market the socio-economic objectives of agricultural policies, there is a feeling goods and characterised by high technology. that, by focussing on product rather than factor markets, many such policies have been directed at the symptoms rather than the causes of At the other, several countries have applied strategies aiming at the transformation of the entire structure of their industry. Without going the problems. Various possibilities exist for pursuing these objectives in ways which are more " welfare-efficient". so far, some countries give assistance on an ad hoc basis, targeted to industries or companies thought to have a particularly promising Several propositions have been put forward by the Committee for future, or considered to be" at the margin" of economic viability, or Agriculture, which are of special relevance: to a combination of both. Equity objectives should be pursued by the most economically efficient means. As far as possible, therefore, the problem of maintain¬ It is clear, of course, that for industrial ventures which require very ing minimum income levels in agriculture for those adversely affected large initial investment and where returns are risky and long term, by structural change should be handled by general arrangements for government assistance may be a condition for the project to be un¬ income maintenance, rather than through agricultural price policy. dertaken at all. This is true, almost by definition, for non-market Differentiated income supplements, with no relationship to goods and services such as armaments and space exploration as well production for the market, may be the most welfare-efficient way of as public transport, communications, education and health systems. promoting the social benefits demographic and environmental There is also a need to supplement market forces where there are im¬ portant externalities or uncertainties involved, e.g. environmental im¬ balance, the quality of life related to maintaining a certain density of rural population in particular regions. This will also facilitate a shift provement, urban renewal, energy conservation and the development of resources to such growth industries as tourism and recreation in of new sources of energy. Both TUAC and OECD's Business and In¬ such regions. dustry Advisory Committe (BIAC) have pointed to the important role of governments in these areas. The Regional Aspect Projecting the shape of structural changes in industry, nationally Purposeful policies for regional development can be fully justified and internationally, can help to improve the rationality of investment by the social costs of excessive industrial concentration, by the high decisions and overcome psychological obstacles to adjustment. It cost of labour mobility from one region to another and by the desire to would not however, be desirable or possible to replace the promote equality of opportunity and maintain regional, cultural and detailed allocative role of the market in a mixed economy with linguistic traditions. Since 1973, however, such polciies have often elaborate administrative machinery or to channel resources in accor¬ been diluted by the increased emphasis given to short-term job dance with some blueprint of the desirable future industrial structure. maintenance programmes. There is also growing concern that under

Industrial Innovation conditions of slow growth, the " regional" label is being mis-used to justify policies which simply try to shift the employment problem from The case for government action to encourage R&D rests on the one place to another at high cost. This underlines the need to pur¬ strategic role of technological change in the growth process and inade¬ sue positive regional policies, based on: quacies of the market mechanism in allocating resources to innova¬ regionally differentiated fiscal and financial incentives and tion. Experience shows, however, that willingness and ability to in¬ disincentives novate depend to a large extent on the general economic climate, and public investment to provide economic and social infrastructure that one should not overestimate what can be achieved by specific manpower policies to increase the supply of skilled labour measures to stimulate R & D. In general, public funds should be used effective arrangements to prevent self-defeating competition primarily for fundamental research, high-risk long-term projects and between regions both domestically and internationally.

38 INTERNATIONAL INVESTMENT AND MULTINATIONAL ENTERPRISES

Review by OECD Ministers

Ministers of OECD Member countries reviewed the three accounts for the greatest volume of foreign direct investment and is instruments of co-operation in the field of international the home country of many of the largest multinational enterprises investment and multinational enterprises which they had over the 1973 to 1978 period its foreign direct investment position in adopted in June 1976 covering : Europe and Canada increased by some 65 per cent, reaching over Guidelines for multinational enterprises $105 billion at year-end 1978 (see chart). Over the same period the the principle that governments should accord foreign-controlled foreign direct investment position of Europe and Canada in the United enterprises the same treatment as that given to domestic enterprises States increased by 82 per cent, reaching some $33 billion by end ("national treatment") 1978. Thus the issues identified by the Ministers in 1976 clearly have the effects of international investment incentives and disincentives. retained their importance.

A report, prepared by the OECD Committee on International In¬ As to the application of the instruments adopted, the report shows vestment and Multinational Enterprises (IME Committee), contains a that: detailed evaluation of the experience gained during the first three years They provide a sound and realistic framework for cooperation not of application of these instruments and presents proposals for improv¬ only among governments, but also between governments, enterprises ing their effectiveness(l). The report notes that, in the context of in¬ and labour. creasing global interdependence, international investment is a major They are a factor in creating a favourable investment climate in the contributor to economic progress and, especially relevant in the pre¬ OECD area. sent situation, a stimulus to growth, employment and more efficient They have a positive effect on discussion of these matters in other allocation of resources. Hence the need for continuing efforts to international fora. enhance the positive effects of the international investment including the activities of multinational enterprises, and to resolve such The Guidelines problems as may arise. Experience to date has shown the value of the Guidelines for The growth of international investment among OECD countries during the Seventies has been substantial, and increasingly countries (1) The report will shortly be published under the title: International are finding themselves in the position of both home and host countries. Investment and Multinational Enterprises, Review of the 1976 Declaration In the case of the United States, for example the country which and Decisions.

SUMMARY OF RESULTS OF REVIEW OF DECLARATION AND DECISIONS ON INTERNATIONAL INVESTMENT AND MULTINATIONAL ENTERPRISES

GENERAL the IME Committee to provide such NATIONAL TREATMENT clarification in the future Reaffirmation of governments' com¬ e Further work on administrative prac¬ Recommendation that individual en¬ mitment to 1976 Declaration tices and economic importance of ex¬ terprises state their acceptance of the ceptions Conclusion that instruments provide Guidelines Association of BIAC and TUAC with effective framework for co-operation Provision by governments of facilities work Next Ministerial review to be held at and arrangements for handling Gui¬ the latest in five years with a mid-term deline issues at national level INTERNATIONAL INVESTMENT IN¬ report to OECD Council in 1982 Provision for enterprises, if they so CENTIVES AND DISINCENTIVES wish, to give views on issues concerning GUIDELINES Agreement on flexible and pragmatic their interests to IME Committee application of instruments One addition to cover transfer of Provision for exchanges of views Medium -term analytical work pro¬ workers from foreign affiliates to in- between IME Committee and advisory gramme on effects of incentives and fluence negotiations unfairly bodies to be held upon request of latter disincentives on international invest¬

Presentation of explanatory comments Member governments to report every ment process on the scope and meaning of the Gui¬ two years on experience and Association of BIAC and TUAC with delines and recognition of the role of developments at national level work P

39 multinational enterprises and it is considered that the best way to get FOREIGN DIRECT INVESTMENT such firms to make more use of them is to maintain a stable Billion of US % framework for the years ahead, keeping amendments to a minimum. US Direct Investment Position in Consequently, the only change proposed by the Committee is to Europe and Canada cover the transfer of workers from a foreign affiliate for the purpose of European and Canadian Direct unfairly influencing negotiations with employees, a case not foreseen Investment Position in US when the guidelines were originally drafted. Such a practice is con¬ sidered by Member governments to be contrary to the behaviour ex¬ 90 pected of enterprises, and this will now be clearly stated in the Gui¬ delines.

80 The issues raised by governments and the two OECD advisory bodies, the Business and Industry Advisory Committee (BIAC) and 70 the Trade Union Advisory Committe (TUAC) have shown that it is necessary to provide the parties concerned with additional guidance. The report accordingly contains numerous explanatory comments on 60 a broad range of issues such as the responsibilities of parent compan¬ ies, disclosure of information, the right of employees to be represented 50 by trade unions and other bona fide organisations, provisions relating to changes in operations which have a major effect upon the livelihood of employees, and access to decision makers. It has been decided that 40 the IME Committee will continue to provide clarification as required.

30 The effectiveness of the Guidelines clearly depends on their becom¬ ing better known; to this end a number of proposals are put forward.

For instance, it is recommended that multinationals state publicly, 20. preferably in their annual reports to shareholders, their acceptance of the Guidelines. They are also invited to include, in subsequent reports, brief accounts of their experience with the Guidelines steps taken to ensure their observance and difficulties encountered. Member 0 governments will take measures at national level to improve their 1973 1974 1975 1976 1977 978 Year ability to deal with issues arising in connection with the Guidelines: end and it is urged that issues relating to application of the Guidelines be Source: Survey of Current Business, US Department of Commerce raised, discussed and, if possible, resolved at national level in the first instance, instead of being referred directly to the OECD Committee. with other governments concerned. Member governments will report These efforts may be supplemented in some cases by bilateral contacts at regular intervals to the OECD on their experience.

TRANSFER PRICING AND MULTINATIONAL ENTERPRISES

OECD 's Council has recommended to to prices which would have been charged authorities differ in their approach governments of Member countries by unrelated enterprises in similar towards transfer pricing, there is a danger that their tax authorities take into circumstances the so-called "arm's that an MNE as a whole may be doubly account the methods suggested in a report length price". taxed. just published by OECD (1)for arriving at The report notes that MNEs are in a This report, which also takes into appropriate transfer prices for taxation position to apply artificial transfer prices account the results of discussions with purposes when goods, technology, in order to minimise tax, for example by representatives of the largest MNEs, trademarks, services etc. are exchanged selling goods to a subsidiary in a tax represents a first attempt to provide gui¬ between associated enterprises in different haven country at less than a normal dance on the methods and practices gen¬ countries. market price. Substantial amounts of erally agreed by tax administrations for revenue have been recouped by the tax In view of the large share of world arriving at acceptable approximations of authorities over recent years through the trade represented by such transfers, the arm's length prices for intra-group tran¬ adjustment of such artificial prices. On question of the price that should be sactions. It is thus hoped that it will not the other hand, the report recognises that applied to them for the purpose of assess¬ only help tax officials to approach more there are factors (e.g. the desire of sub¬ ing taxable profits is of considerable im¬ effectively the problems presented by the sidiaries to maximise their profits) portance both to the tax authorities and to transfer prices of MNEs, but also the the multinational enterprises (MNEs). militating against artificial transfer pric¬ enterprises themselves by indicating ways ing and that it is not always easy for in which mutually satisfactory solutions The basic premise of this report, MNEs to calculate appropriate transfer may be found to those tax problems. accepted both by national tax prices especially if as may happen administrations and MNEs, is that as far they are faced with conflicting re¬ as possible these price levels should, for quirements by different government (1) "Transfer Pricing and Multinational tax determination purposes, approximate administrations. Moreover, ifnational tax Enterprises", OECD, Paris, 1979.

40 At international level, the IME Committee finds that much benefit International Investment Incentives and has been derived from the frequent contacts with the two OECD Disincentives advisory bodies and stresses its intention to maintain these contacts. In addition, it will give any enterprise the opportunity to inform the It would be detrimental to international cooperation and to the Committee of its views, either orally or in writing, on issues related to efficient allocation of economic resources available for investment if their interest in the Guidelines. The Committee reaffirmed however there were increasing differences between countries due to excessive that, as set out in 1976 the "Committee shall not reach conclusions on use of incentives and disincentives intended to influence the internatio¬ the conduct of individual enterprises "; thus it should not be seen as a nal investment decisions of enterprises. Thus there is a need to carry judicial or quasi-judicial forum. Rather, specific instances presented international cooperation further in this area. The IME Committee will be used as illustrations of more general issues. accordingly recommends a flexible and pragmatic approach in apply¬ ing the procedures established by the 1976 decision to resolve any National Treatment difficulties with may develop. Provision is made for periodic ex¬ changes of views with BIAC and TUAC in this area too.

With regard to national treatment for foreign-controlled enterprises, The IME Committee plans to undertake analytical work on invest¬ (treatment no less favourable than that accorded in like situations to ment incentives and disincentives, the aim being to ascertain the im¬ domestic enterprises), the 1976 agreements have significantly im¬ pact of such measures on international direct investment flows proved the transparency of exceptions to national treatment which are together with the effects of competition between governments. embodied in the laws and regulations of Member countries. However, it is also noted that much remains to be done in certain areas, especia¬ * * * lly on administrative practice and in evaluating the economic im¬ portance of the exceptions. It appears that no new exceptions to natio¬ The next formal review by the Ministerial Council of the 1976 in¬ nal treatment have been put in place by OECD Member governments struments will take place not later than five years from now. It is since the instruments were adopted in 1976. In fact, certain Member proposed that a mid-term progress report be submitted to the OECD countries have broadened the application of national treatment. Ex¬ Council in 1982. This report, which is to be published, will recount the amination and discussion of national treatment questions will continue experience of the IME Committee and Member governments in giving with the aim of extending its application, and provision is made for effect to the proposals contained in the 1979 Review Report and, BIAC and TUAC to be associated with this work in future. more generally, in the further implementation of the 1976 instruments.

European investment in the United States - to left, Volks- $H wagen's plant for making the Rabbit in Westmoreland m Pennsylvania

and

US investment in Europe: to right, IBM manufacturing logical circuits in Corbeil Essones near Paris.

| ,-r ... -C W* -A /

*^jE ^ *.. »- - :*k i. J» r<

1

41 pre-packed fresh fruit and vegetables. (51 79 03 1) ISBN 92-64-1 191 1-6 48 pages E 1.50 US$3.00 F12.00

CERI

NEW OECD EDUCATIONAL FINANCING AND POLICY GOALS FOR PRIMARY PUBLICATIONS SCHOOLS: Vol. I: AUSTRALIA, CANADA, GERMANY (May 1979) "Docu¬ ment " Series

(96 79 01 1) ISBN 92-64-1 1899-3 186 pages £6.00 US$12.50 F50.00

Vol. II : UNITED KINGDOM, THE CASE FOR POSITIVE AD¬ ENERGY BALANCES OF OECD plications in the public and private sectors. UNITED STATES, YUGOSLAVIA JUSTMENT POLICIES. A Com¬ COUNTRIES, 1975-1977 (May (93 7901 31 ISBN 92-64-01 926-X (June 1979) "Document" pendium of OECD Documents, 1979) 336 pages, bit. .. £9.80 US$20.00 F80.00 Series 1978-1979 (June 1979) Energy supply, demand and FINANCIAL MARKET TRENDS (96 79 02 1) ISBN 92-64-1 1900-0 Since 1973 OECD countries have transformation statistics for each 148 pages £6.00 US$12.50 F50.00 had considerable difficulty in ad¬ Member country and main regions in No. 8 - February 1979 (April Vol. Ill: NETHERLANDS, NOR¬ justing to higher energy prices, slower a common unit (tons of oil equiva¬ 1979) growth and new competitors. The lent). A valuable document for those (27 79 01 1)84 pages WAY, SWEDEN, ITALY (May papers in this volume discuss the do's wishing to make country comparisons FINANCIAL MARKET TRENDS 1979) "Document" Series (967903 1) ISBN 92-64-1 1901 -9 and don'ts of government action to in international energy issues. No. 9 - April 1979 (May 1979) 176 pages £6.00 US$12.50 F50.00 (61 79 06 31 ISBN 92-64-01950-2 promote structural changes in the (27 79 02 1)48 pages 106 pages, bit. .. £4.40 US$9.00 F36.00 fields of manpower, social, industrial Each issue £3.40 US$7.00 F28.00 Comparative study of primary school ISSN 0378-65-IX Subscription finance based on ten studies of the R&D, agricultural and regional WORKSHOP ON ENERGY DATA £14.60 US$30.00 F1 20,00 policies. arrangements for financing primary OF DEVELOPING COUNTRIES. education in different OECD Member (11 79 03 1 1 ISBN 92-64-1 1 942-6 WASTE PAPER RECOVERY. ECO¬ £2.00 USS4.00 F 1 6.00 Vol. 2, December 1978: BASIC countries. NOMIC ASPECTS AND ENVI¬ ENERGY STATISTICS AND EN¬ THE IMPACT OFTHE NEWLY I N- RONMENTAL IMPACTS (June ERGY BALANCES OF DEVELOP¬ STATISTICS DUTRIALISING COUNTRIES ON 1979) ING COUNTRIES, 1967-1977 PRODUCTION AND TRADE IN Assesses the various constraints ENERGY STATISTICS, 1975-1977 (June 1979) MANUFACTURES. Report by the which affect the recovery of waste (May 1979) Two complete sets of statistics for 1 6 Secretary General (June 1979) paper, investigates the institutional Supply, demand and trade for a three developing countries: basic energy Increased competition from newly arrangements which can be set up for year period of primary and secondary tables providing detailed data on industrialising countries such as reducing price fluctuations on the energy sources. Covers all OECD production, trade, transformation, and Korea, Mexico and Brazil has been a waste paper market, examines the Member countries and many regions. consumption in original units of range of policy options that cause of concern in the developed Also contains certain price series. account. The energy balances present countries. For the first time, the governments have at their disposal to (61 79 05 3) ISBN 92-64-01 929-4 data in a common unit (tons of oil promote paper recycling. 194 pages, bit. OECD has produced a detailed an¬ equivalent) and in a format suited for (97 79 03 1) ISBN 92-64-1 1910-8 £6.00 US$12.50 F50.00 alysis of the facts, to put this research and analysis. 162 pages phenomenon into perspective. (61 79 04 31 ISBN 92-64-01 879-4 £4.20 US$8.50 F 34,00 QUARTERLY OIL STATISTICS. (11 7904 11 ISBN 92-64-1 1943-4 540 pages, bit. .. £7.30 US$15.00 F60.00 Fourth quarter 1978. No. 1/1979 96 pages £5.90 US$12.00 F4B.00 MANAGING TRANSPORT. Man¬ (June 1979) ENERGY POLICIES AND PRO¬ agement of Transport Systems to (60 79 01 3) 300 pages, bilingual "OECD Economic Surveys ". GRAMMES OF IEA COUNTRIES. Improve the Urban Environment £4.90 US$10.00 F40.00 1979 Series : ISSN 0378-6536. Subscription 1978 REVIEW (June 1979) (May 1979) "Document" Series £14.60 US$30.00 Fl 20,00 Detailed annual surveys of trends Second annual evaluation of the Reviews the innovative actions and and prospects for each OECD coun¬ energy policies and programmes of experience concerning urban QUARTERLY NATIONAL AC¬ try. IEA member countries. Reviews transport in 12 different cities of the COUNTS BULLETIN, 1979/1 SWEDEN (April 1979) national policies designed to improve developed world and draws detailed (May 1979) (10 79 25 I) ISBN 92-64-11933-7 74 pages the balance in energy supply and de¬ conclusions as to the importance of 78 pages, bilingual mand and national energy research new management oriented urban ISSN 0304-3738 Subscription SWITZERLAND (April 1979) £5.40 US$11.00 F44.00 (1079 26 11 ISBN 92-64-11934-5 72 pages and development programmes. transport policies to contribute to the Provides energy forecasts for 1985 solution of the problems of urban ar¬ SPAIN (April 1979) INDICATORS OF INDUSTRIAL and 1990. eas by local and national authorities (10 79 24 11 ISBN 92-64-11931-0 62 pages ACTIVITY, 1979/1 (May 1979) (61 7907 11 ISBN 92-64-11 937 -X and urban specialists. Each issue £7.50 USS3.00 F 12,00 This new quarterly publication aims 298 pages £12.00 US$25.00 F100.00 (97 79 01 1) ISBN 92-64-1 1895-0 ISSN 0376-6438 Subscription to give an overall view on the short- £24.00 USS50.00 F200.00 302 pages £7.80 US$16.00 F64.00 THE MIGRATION OF LONG-LIVED term economic evolution in different OECD ECONOMIC OUTLOOK branches of industry for all OECD RADIONUCLIDES IN THE GEO- "OECD Agricultural Policy Re¬ No. 25 (July 1979) Member countries. SPHERE. Proceedings of the ports " : Presents forecasts of activity up to It presents indices on production, Workshop, Brussels, 29th-31st deliveries, new orders and unfilled or¬ the middle of 1980 for the OECD AGRICULTURAL POLICY OF January 1979 area and its Member countries. ders, producer and employment GREECE (May 1979) "Docu¬ (June 1979) prices by groups and SITC industrial Emphasis is placed on the effects of ment" Series higher oil prices and a special section Proceedings of a workshop on categories. In addition, it contains a Gives a comprehensive review of the examines why oil has become so im¬ processes and mechanisms controll¬ certain number of qualitative state of agriculture, agricultural portant and the implications for policy ing the migration of radionuclides in statistics from surveys carried out in policies and measures taken in a OECD countries. and economic growth in the short- soils and geological formations, country which is on the verge of (37 79 01 3) 126 pages, bilingual and medium-term. particularly in relation to radioactive becoming the 10th member of the £3.40 US$7.00 F28.00 (12 79 25 11 Each issue waste disposal. Subscription... £12.00 US$25.00 F100.00 £3.90 USS8.00 F32.00 (66 79 05 31 ISBN 92-64-01925-1 European Economic Community. (12 00 00 11 Subscription 346 pages, Texts in English & French (51 79 05 1) ISBN 92-64-1 1919-1 US$15.00 F60.00 £8.30 US$17.00 F68,00 92 pages £3.20 US$6.50 F26.00 THE FOOTWEAR, RAW HIDES AND SKINS AND LEATHER IN¬ MEASURING EMPLOYMENT "Agricultural Products and DUSTRY IN OECD COUNTRIES, ICCP Series : AND UNEMPLOYMENT (June Markets ". 1977-1978 (June 1979)

1979) "Document" Series No. 1. TRANSBORDER DATA OECD scheme for the application of (71 79 81 3) ISBN 92-64-01927-8 Contains recommendations of an 62 pages, bit . . . £2.50 US$5.00 F20.00 FLOWS AND THE PROTECTION international standards for fruit and OECD Working Party on the measure¬ vegetables: OF PRIVACY (May 1 979) " Docu¬ PULP AND PAPER. Quarterly ment of employment and unemploy¬ ment " Series PREPACKAGING OF FRUIT AND Statistics, 1978/4 (April 1979) ment and full details of current statis¬ A Symposium on Developments in VEGETABLES (May 1979) 56 pages, bilingual tical practice in Member countries. Each issue £2.00 US$4.00 F16.00 Transborder Data Flows and their " Document " Series (81 7901 1) ISBN 92-64-1 1898-5 ISSN 0335-377X Subscription 248 pages £6.00 US$12.50 F50.00 national and international im Reviews the market prospects for £5.90 US$12.00 F48.00

42 Where lo obtain 01X /> PublieaiUms

ARGENTINA ITALY PORTUGAL

Carlos HirschS.R.L., Libreria Commissionaria Sansoni, Livraria Portugal, Florida 165, 4° Piso Via Lamarmora 45, 50121 Firenze. Rua do Carmo 70-74, 117 Lisboa Codex. (Galeria Guemes) 1333 Buenos Aires Tel. 579751/2/3 Tel. 360582/3 Tel. 33-1787-2391 Y 30-7122 Via Bartolini 29, 20155 Milano, SPAIN Tel. 365083 AUSTRALIA Mundi-Prensa Libros, S.A., Sub-depositari: Castellô 37, Apartado 1223. Madrid 1. Australia and NewZealand Book Co. Pty. Ltd., Editrice e Libreria Herder, 23 Cross St., (P. OB. 459) Tel. 275.46.55/276.02.53 Piazza Montecitorio 120, 00186 Roma. Libreria Bastinos de José Bosch, Brookvale, New South Wales, 2100 Tel. 674628 Tel. 938.22.44 Pelayo 52, Barcelona 1. Tel. 222.06.00 Libreria Hoepli AUSTRIA Via Hoepli 5, 20121 Milano. Tel. 865446 SWEDEN Gerold& Co.,Graben 31, Wien I. Libreria Lattes AB CE Fritzes Kungl Hovbokhandel, Tel. 52.22.35 Via Garibaldi 3, 10122 Torino. Tel. 519274 Box 16356, S 103 27 STH, Regeringsgatan 12 DS Stockholm. Tel. 08/23.89.00 La diffusione delle edizioni OCSE è inoltre BELGIUM assicurata dalle migliori librerie nelle città più SWITZERLAND LCLS importante 44 rue Otlet. B-1070 Bruxelles. Librairie Payot, Tel. 02-521 28 13 6 rue Grenus. 1211 Genève 11. JAPAN Tel. 022-31.89.50 BRAZIL OECD Publications and Information Center, Akasaka Park Building, TAIWAN Mestre Jou S.A., 2-3-4 Akasaka, Minato-ku Rua Guaipà 518, Caixa Postal 24090, National Book Company, 05089 Sao Paulo 10. Tel. 261.1920. Tokyo 107. Tel. 586-2016 84-5 Sing Sung Rd., Sec. 3, Rua Senador Dantas 19 s/205-6 Taipei 107. Tel. 321.0698 KOREA Rio-de-Janeiro - GB. Tel. 232.07.32 THAILAND PanKoreaBookC orporation CANADA P.O. Box N° 101 Kwangwhamun, Seoul Suksit Siam Co., Ltd. 1715 Rama IV Rd. R enouf P ublishing C ompany Limited, Tel. 72.7369 Tel. 2511630 2182 St. Catherine Street West, S amy am Bangkok 5. LEBANON Montreal, Quebec H3H 1M7. UNITED KINGDOM and Tel. (514)937.3519 Documenta Scientifica/Redico, CROWN COLONIES Edison Building. Bliss Street, DENMARK H.M. Stationery Office P.O. Box 5641, Beirut. P.O. Box 569, London SE1 9HN. Munksgaards Boghandel. Tel. 354429-344425 Norregade 6, DK-1165 Copenhagen K. Tel. 01.928.6977, Ext. 410 Tel. (01)12.85.70 or MALAYSIA 49 High Holborn FINLAND University of Malaya Co-operative Bookshop London WC IV 6HB (personal callers) Ltd.. Akateeminen Kirjakauppa. Branches at: Belfast, Birmingham, P.O. Box 1127, Jalan Pantai Baru Keskuskatu 1. 00100 Helsinki 10. Bristol. Cardiff. Edinburgh. Manchester. Tel. 625.901 Kuala Lumpur Tel. 51425. 54058, 54361 UNITED STATES

FRANCE THE NETHERLANDS OECD Publications and Information Center,

Bureau des publications de l'OCDE, Staatsuitgeverij Suite 1207, 1750 Pennsylvania Ave, N.W. 2 rue André-Pascal, F75775 Paris Cedex 16 Chr. Plantijnstraat Washington, D.C. 20006. Tel. (1)524 81.67 'S-Gravenhage. Tel. 070-814511 Tel. (202)724.1857 Voor bestelligen: Tel. 070-624551 Principal correspondant : VENEZUELA Librairie de l'Université, Libreria del Este, 13602 Aix-en-Provence. Tel. (42)26.18.08 NEW ZEALAND Avda F. Miranda 52, Aptdo. 60337, Ediflcio GERMANY The Publications Manager, Galipan, Caracas 106. Government Printing Office, Tel. 32.23.01/33.26.04/33.24.73 Alexander Horn, Wellington: Mulgrave Street (Private Bag), D -62000 Wiesbaden, Spiegelgasse 9 World Trade Centre, Cubacade, Cuba Street. YUGOSLAVIA Tel. (6121) 37-42-12 Rutherford House. Lambton Quay. Jugoslovenska Knjiga. Terazije 27, GREECE Tel. 737.320 P.O.B. 36. Beograd. Tel. 621.992

Librairie Kauffmann, Auckland : Rutland Street (P.O. Box 5344), 28 rue du Stade, Athens 132, Tel. 32.919 Tel. 322.21.60 Christchurch: 130 Oxford Tee (Private Bag) Tel. 50.331 HONG KONG Government Information Services, Hamilton: Barton Street (P.O. Box 857) Sales and Publications Office, Tel. 80.103 Beaconsfield House, 1st floor, Dunedin: T. & G. Building, Princes Street Queen's Road, Central. Tel. 5-233191 (P.O. Box 1104). Tel. 78.294

ICELAND NORWAY SnaebjôrnJônsson& Co.,h.f., Hafnarstraeti 4 and 9, J.G. Tanum A/S. P.O.B. 1131 - Reykjavik. Karl Johansgate 41/43. Oslo 1. Tel. 13133/14281/11936 Tel. (02) 801260

INDIA PAKISTAN Orders and inquiries from countries where Oxford Book and Stationery Co. M irza B ook Agency, Sales Agents have not yet been appointed Scindia House, New Delhi I. Tel 45896. 65 Shahrah Quaid-E-Azam, Lahore 3. should be sent to OECD Publications Office. 17 Park Street. Calcutta Tel. 240832 Tel. 66839 2 rue André-Pascal. F 75775 Paris CEDEX 16.

Director : M aurice J acomet Printed in France Organisation for Economie Co-operation and Development

Member Countries :

Australia

Austria / Belgium / Canada / Denmark / Finland / France / Germany -^ Greece / p< Iceland / Ireland ( \_ Italy \y Japan \ \r Luxembourg J)l Netherlands ^ New Zealand s Norway J Portugal Spain \ Sweden \ S wi tzerlandv_^_^> Turkey United Kingdom United States

Special Status Country

Yugoslavia

ISSN 0029-7054